Negative reprices currently aren't a matter of "if...

Fannie 3.0s just hit the lows of the day at 104-16...

Although current price action isn't necessarily indicative of negative reprice risk, the trend has not been our friend so far this morning. Fannie 3.0s are off 104-23+ highs and have been trudging sideways at 104-18 to 104-19 since roughly 11am. 10yr yields are pushing their highs at 1.8635 (highest levels since mid-September).

It's entirely possible that we're simply witnessing some sort of slow-motion bounce at the outermost limits of the long term range. 1.864 seems like an informative short term pivot in assessing whether or not a "bounce" will ultimately be the case, with a break back below 1.857 helping to reinforce the bounce. More simply put: holding under 1.864=good. Breaking below 1.857 = better, and time spent over 1.864=not good.

With all that in mind (and not trying to jinx it), it looks like the bounce may be taking shape as this is typed. 10's are currently at 1.8583 and Fannie 3.0s are up to 104-20 after several solid bounces at 104-18.

We did get one negative reprice reported, but apart from that, still aren't seeing much by way of justification for additional reprices. That said, there's plenty of reason to stay on guard! With the underfoot support so firmly established at 104-18, a break below would seem to suggest that negative reprices would quickly become more likely.

Fannie 3.0's are still hovering between 104-19 and 104-21, but along with Treasuries, have been under some pressure since about 9:15. Some of the weakness coincides with equities markets that turned the corner about 10 minutes into the cash session. S&Ps fell just over 4 points at the open, but gained it all back by 10:30. A "risk-on" move in Europe contributed to higher stock prices and higher bond yields.

At the highest levels, 10yr yields crested the 1.86 technical level, though have currently backed off just slightly, now sitting at 1.8583. Fannie 3.0s are still definitely outperforming, but definitely feeling the pressure, well off earlier highs at 104-23. We just got a few brief forays into 104-19 territory, but are back up at 104-20 for now. Things seem a bit volatile and we're definitely playing defense here with benchmark 10's up against the ceiling.

A lender would have had to have priced quite early in the session and be quite jumpy in order to be considering a negative reprice, but it's not completely out of the realm of possibility. If we saw a sustained break below 104-18, then risks would increase, but SO FAR, it looks like we're holding our ground.

Everything has been fairly cut and dry so far this morning. The overnight session was non-existent at first with Asian markets closed for New Year Holidays still and European trading relatively muted. Both 10yr yields and MBS crossed the 8am mark in just slightly stronger territory than yesterday's latest levels, but within the session's respective trading ranges.

Morning trading so far has delivered on expectations in several ways:

- ADP's Employment Report was the focal point, where much stronger-than-expected private payroll creation sent bond markets into a bit of an early morning tail-spin.

- But mitigating the tail-spin were a few other familiar fuzzy blankets, the first of which being the increasingly reliable 1.86% support level for 10yr yields (hit it y'day, hit it again after ADP) though this makes it less of a warm fuzzy whenever it's broken.

- Also familiar is recent MBS outperformance. Case in point, Fannie 3.0s are 4 ticks into the green while 10yr yields are still half a bp higher on the morning. Or if we want to look at things relative to y'day's ranges, MBS are just poking their head above y'day's highs while 10yr yields are right in the middle of their range.

Bottom line, factoring out absentee Asian markets, volume continues to demonstrate "back to business" levels, and bond markets continue to trade the range, while MBS continue to outperform. ADP data was obviously a mini-shock, but not a big enough one to confirm a breakout of the aforementioned range. Results may vary after NFP tomorrow morning or with unforeseen headline tape-bombs today, but otherwise, so far so good for confirming that the "pre-fiscal-cliff-deal" range is the same as the "post-fiscal-cliff-deal range."

Next up:
- Fed Treasury buying at 10:15
- FOMC Minutes at 2:00pm

- Claims 372k vs 363k Consensus, 350k Previous
- 4-Week Average up to 360k from 359,7650
- Continued Claims up to 3.245 mln from 3.201 mln
- Market Reaction: Helping bond markets dig in a bit against ADP-related selling. MBS just now ticked back to unchanged on the day. 10yr yields still struggling to avoid break above 1.86

In the week ending December 29, the advance figure for seasonally adjusted initial claims was 372,000, an increase of 10,000 from the previous week's revised figure of 362,000. The 4-week moving average was 360,000, an increase of 250 from the previous week's revised average of 359,750.

The advance seasonally adjusted insured unemployment rate was 2.5 percent for the week ending December 22, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending December 22 was 3,245,000, an increase of 44,000 from the preceding week's revised level of 3,201,000. The 4-week moving average was 3,224,250, an increase of 6,500 from the preceding week's revised average of 3,217,750.

- Private Payrolls up 215k vs 133k Consensus
- Previous report revised to 148k from 118k
- Market Reaction: Surge in volume and selling in Treasuries taking 10yr yields up 2bps in the minute following the release. 10's bounced at 1.85 at first, pulled back, and moved back above 1.85. MBS pulled back 3-4 ticks briefly, bounced, but are back to -2 on the day at 104-18

Private sector employment increased by 215,000 jobs from November to December, according to the December ADP National Employment Report which is produced by Automatic Data Processing, Inc. (ADP a leading provider of human capital management solutions, in collaboration with Moody’s Analytics. The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. The November 2012 report, which reported job gains of 118,000, was revised upward by 30,000 to 148,000 jobs.

Negative reprices currently aren't a matter of "if...

Fannie 3.0s just hit the lows of the day at 104-16...

Although current price action isn't necessarily indicative of negative reprice risk, the trend has not been our friend so far this morning. Fannie 3.0s are off 104-23+ highs and have been trudging sideways at 104-18 to 104-19 since roughly 11am. 10yr yields are pushing their highs at 1.8635 (highest levels since mid-September).

It's entirely possible that we're simply witnessing some sort of slow-motion bounce at the outermost limits of the long term range. 1.864 seems like an informative short term pivot in assessing whether or not a "bounce" will ultimately be the case, with a break back below 1.857 helping to reinforce the bounce. More simply put: holding under 1.864=good. Breaking below 1.857 = better, and time spent over 1.864=not good.

With all that in mind (and not trying to jinx it), it looks like the bounce may be taking shape as this is typed. 10's are currently at 1.8583 and Fannie 3.0s are up to 104-20 after several solid bounces at 104-18.

We did get one negative reprice reported, but apart from that, still aren't seeing much by way of justification for additional reprices. That said, there's plenty of reason to stay on guard! With the underfoot support so firmly established at 104-18, a break below would seem to suggest that negative reprices would quickly become more likely.

Fannie 3.0's are still hovering between 104-19 and 104-21, but along with Treasuries, have been under some pressure since about 9:15. Some of the weakness coincides with equities markets that turned the corner about 10 minutes into the cash session. S&Ps fell just over 4 points at the open, but gained it all back by 10:30. A "risk-on" move in Europe contributed to higher stock prices and higher bond yields.

At the highest levels, 10yr yields crested the 1.86 technical level, though have currently backed off just slightly, now sitting at 1.8583. Fannie 3.0s are still definitely outperforming, but definitely feeling the pressure, well off earlier highs at 104-23. We just got a few brief forays into 104-19 territory, but are back up at 104-20 for now. Things seem a bit volatile and we're definitely playing defense here with benchmark 10's up against the ceiling.

A lender would have had to have priced quite early in the session and be quite jumpy in order to be considering a negative reprice, but it's not completely out of the realm of possibility. If we saw a sustained break below 104-18, then risks would increase, but SO FAR, it looks like we're holding our ground.

Everything has been fairly cut and dry so far this morning. The overnight session was non-existent at first with Asian markets closed for New Year Holidays still and European trading relatively muted. Both 10yr yields and MBS crossed the 8am mark in just slightly stronger territory than yesterday's latest levels, but within the session's respective trading ranges.

Morning trading so far has delivered on expectations in several ways:

- ADP's Employment Report was the focal point, where much stronger-than-expected private payroll creation sent bond markets into a bit of an early morning tail-spin.

- But mitigating the tail-spin were a few other familiar fuzzy blankets, the first of which being the increasingly reliable 1.86% support level for 10yr yields (hit it y'day, hit it again after ADP) though this makes it less of a warm fuzzy whenever it's broken.

- Also familiar is recent MBS outperformance. Case in point, Fannie 3.0s are 4 ticks into the green while 10yr yields are still half a bp higher on the morning. Or if we want to look at things relative to y'day's ranges, MBS are just poking their head above y'day's highs while 10yr yields are right in the middle of their range.

Bottom line, factoring out absentee Asian markets, volume continues to demonstrate "back to business" levels, and bond markets continue to trade the range, while MBS continue to outperform. ADP data was obviously a mini-shock, but not a big enough one to confirm a breakout of the aforementioned range. Results may vary after NFP tomorrow morning or with unforeseen headline tape-bombs today, but otherwise, so far so good for confirming that the "pre-fiscal-cliff-deal" range is the same as the "post-fiscal-cliff-deal range."

Next up:
- Fed Treasury buying at 10:15
- FOMC Minutes at 2:00pm

- Claims 372k vs 363k Consensus, 350k Previous
- 4-Week Average up to 360k from 359,7650
- Continued Claims up to 3.245 mln from 3.201 mln
- Market Reaction: Helping bond markets dig in a bit against ADP-related selling. MBS just now ticked back to unchanged on the day. 10yr yields still struggling to avoid break above 1.86

In the week ending December 29, the advance figure for seasonally adjusted initial claims was 372,000, an increase of 10,000 from the previous week's revised figure of 362,000. The 4-week moving average was 360,000, an increase of 250 from the previous week's revised average of 359,750.

The advance seasonally adjusted insured unemployment rate was 2.5 percent for the week ending December 22, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending December 22 was 3,245,000, an increase of 44,000 from the preceding week's revised level of 3,201,000. The 4-week moving average was 3,224,250, an increase of 6,500 from the preceding week's revised average of 3,217,750.

- Private Payrolls up 215k vs 133k Consensus
- Previous report revised to 148k from 118k
- Market Reaction: Surge in volume and selling in Treasuries taking 10yr yields up 2bps in the minute following the release. 10's bounced at 1.85 at first, pulled back, and moved back above 1.85. MBS pulled back 3-4 ticks briefly, bounced, but are back to -2 on the day at 104-18

Private sector employment increased by 215,000 jobs from November to December, according to the December ADP National Employment Report which is produced by Automatic Data Processing, Inc. (ADP a leading provider of human capital management solutions, in collaboration with Moody’s Analytics. The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. The November 2012 report, which reported job gains of 118,000, was revised upward by 30,000 to 148,000 jobs.

- Claims 372k vs 363k Consensus, 350k Previous
- 4-Week Average up to 360k from 359,7650
- Continued Claims up to 3.245 mln from 3.201 mln
- Market Reaction: Helping bond markets dig in a bit against ADP-related selling. MBS just now ticked back to unchanged on the day. 10yr yields still struggling to avoid break above 1.86

In the week ending December 29, the advance figure for seasonally adjusted initial claims was 372,000, an increase of 10,000 from the previous week's revised figure of 362,000. The 4-week moving average was 360,000, an increase of 250 from the previous week's revised average of 359,750.

The advance seasonally adjusted insured unemployment rate was 2.5 percent for the week ending December 22, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending December 22 was 3,245,000, an increase of 44,000 from the preceding week's revised level of 3,201,000. The 4-week moving average was 3,224,250, an increase of 6,500 from the preceding week's revised average of 3,217,750.

- Private Payrolls up 215k vs 133k Consensus
- Previous report revised to 148k from 118k
- Market Reaction: Surge in volume and selling in Treasuries taking 10yr yields up 2bps in the minute following the release. 10's bounced at 1.85 at first, pulled back, and moved back above 1.85. MBS pulled back 3-4 ticks briefly, bounced, but are back to -2 on the day at 104-18

Private sector employment increased by 215,000 jobs from November to December, according to the December ADP National Employment Report which is produced by Automatic Data Processing, Inc. (ADP a leading provider of human capital management solutions, in collaboration with Moody’s Analytics. The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. The November 2012 report, which reported job gains of 118,000, was revised upward by 30,000 to 148,000 jobs.