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MBS At Weakest Levels, Very Slightly Increasing Reprice Risk
Posted to: Micro News
Wednesday, February 06, 2013 10:48 AM
MBS are at their weakest levels of the morning. Everything has moved very gently in a 'risk-on' direction (stocks/yields higher, MBS Prices lower) since about 8:50am. That means that we didn't even have the first round of rate sheets today before MBS were already a tick or two off their opening highs. Thus, there's only a 2-3 tick gap between current prices and those in force at rate sheet print times.
In other words, the outright differences in prices between then and now are not sufficient to motivate negative reprices, but we're putting this alert out for three reasons:
1. Some lenders don't historically need to see 4+ ticks of losses in order to reprice for the worse, and will consider the current intraday momentum. That momentum is negative at the moment.
2. More importantly, we wanted to bring that momentum to your attention for it's potential near term implications. If prices were to fall further from here, reprices would become incrementally more risky with each tick lower (assuming the lender in question was already out with rates before 10:30am.
3. To whatever extent Fannie 3.5's have a bearing on the rate sheets of the lender in question (if the range of viable 30yr Fannie rates includes 3.875% and higher), things have been choppy and illiiquid in that section of the MBS stack so far this morning, with a few quotes showing up at 105-16 vs rate-sheet-time prices over 105-20. They're back to 105-20 currently though.
Bottom line, negative reprices are unlikely, but an outside possibility for a small number of lenders. More importantly, they'd be increasingly possible if Fannie 3.0s dip below 103-11 for more than a few minutes or by more than a few ticks.
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