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Fannie 4.0s Edge Into Negative Territory; Reprice Risk Varies
Posted to: Micro News
Friday, August 30, 2013 1:02 PM
This is one of those situations where no lenders will reprice negatively or where several might. A lot depends on how conservative the initial rate sheet was in preparation for the afternoon illiquidity and 3-day weekend, as well as the print time itself.
That afternoon illiquidity has arrived for MBS and buyers are on strike with the precious few sellers willing to chase prices a few ticks lower. Fannie 4.0s are 1 tick into negative territory now at 103-06+. 10yr Treasuries have also crossed into the red, but are currently unchanged at 2.760.
For what it's worth, we've seen this situation before--where an apparent lack of buying interest ultimately gives way to a late push of month-end buying near the end of the day, but it can go either way. The point is that the market's true intentions are masked by low volume, not to mention the fact that there may be no intentions period, other than to make it to the exits with minimal fanfare.
Negative reprice risk has moved from "unlikely" to "slightly less unlikely," but certainly not a given. Indeed, the "bounce" looks like it could already be taking shape. As such, we'd treat current levels as a line in the sand for additional reprice risk, should we happen to recover a tick or two (in other words, if 4.0s go back into the green right now, that would make this "1 tick into the red" territory a good indicator that reprice risk is picking up again).
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