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Negative Reprice Risk Picking Up As Flight-to-Safety Reverses
Posted to: Micro News
Thursday, December 27, 2012 3:46 PM
Around noon, news hit that the House would reconvene on Sunday at 6:30pm. In and of itself, the headline doesn't appear to say much, but considering that much of today's bond market rally was predicated on Harry Reid referring to going over the Fiscal Cliff by saying "Looks like [that's] where we're headed," it stands to reason that some of that flight-to-safety should be unwound if congress is getting together on a Sunday night in late December.
Stocks have taken the news and ran with it while Treasuries and MBS generally did a good job of fighting off the risk reversal at first. At this point, it looks like that admirable display of ground-holding is starting to get a bit shaky as MBS test their lowest levels since before Reid's initial comments at 10am.
Whereas positive reprices were more likely an hour ago, negative reprices are more likely now. Fannie 3.0s are down to 104-24 from 104-29 highs--not a huge move considering we're still 2 ticks higher on the day, but it may be enough for several lenders to already be planning on negative reprices if prices can't immediately find a reason to bounce back above 104-25. Bottom line, negative reprices aren't guaranteed, but they're now more likely than positive reprices and that will continue to be the case at 104-25 or below.
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