Inching Toward New Highs; Positive Reprice Potential
MBS have been outperforming Treasuries only modestly but that's enough to bring Fannie 3.5s back within a tick of their session highs at 101-31. This is 3-4 ticks higher than some lenders' rate sheet print times this morning which puts us right on the edge of positive reprice potential.
The day's key market-moving consideration remains the weaker Retail Sales data, with none of the other data getting in the way. FHFA Director Mel Watt spoke earlier, highlights include:
- Will not reduce loan limits
- Relaxing buy-back requirements for faulty loans
- GSEs launching pilot program in Detroit for loan modifications
- GSEs no longer required to reduce support for multi-family lending
- FHFA no longer pushing GSEs to reduce market presence in order to preserve liquidity
- FHFA still likes the idea of "risk transfers" though... wants GSEs to step that up from $30bln to $90bln
- FHFA also still wants GSEs to keep reducing "retained portfolio."
In other words, common sense is prevailing to a certain extent as Director Watt acknowledges the liquidity function served by the GSEs. Full steam ahead for the business of guaranteeing repayment (which is the GSEs most vital function). And a continued contraction of the activities that arguably overextended the GSEs industry footprint, such as actually owning loans and the associated credit risk.
For all of the seemingly significant news, MBS haven't reacted much in terms of spreads vs Treasuries.