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Negative Reprice Risk Already? It Depends...
Posted to: Micro News
Friday, June 06, 2014 9:45 AM
Here we are with 5 ticks of green on NFP day and at essentially the same levels reached on the first positive move of the day, yet negative reprices are already a consideration in some cases. The risk depends heavily on the time of day a particular rate sheet came out. In that regard, it's only really a consideration for rate sheets that were out at 9:20am or before.
Even then, it's a reasonably safe assumption that lenders aren't going to fully price in quick, post-NFP gains when bond markets are pulling back from their best levels of the morning, so there's likely a bit more cushion (i.e. 4/32nds or .125 of MBS weakness isn't likely to result in .125 reprices).
All that having been said, there are two counterpoints to keep in mind.
First, some lenders reprice on 'trend' and 'tone.' If the tone of trading shifts noticeably and the trend is clearly negative, it can take fewer losses than normal to motivate reprices.
Second, none of this can speak to where we go from here. If MBS lose a few more ticks, early lenders are more likely to reprice than if we manage to bounce here.
Fannie 3.5s are currently up 5 ticks on the day but down 5 from 9:15am at 102-19. 10yr yields have moved up from 2.53 to 2.573 since 8:50am.
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