After worse than anticipated initial claims data, stocks have given back yesterday's gains and benchmark 10yr notes are priced near the profit taking side of their recent range. A flattening bid for the long end of the yield curve  has led the August Delivery FNCL 4.5 back to record highs.

Oh wait, this just in: THE AUGUST FNCL 4.5 JUST PRINTED 104-22. NEW RECORD HIGH MARK!

Loan pricing should be better this AM,  at least from the lenders who took down indications when the  September coupons were bid at session highs.  That theory also implies secondary isn't taking into account the sensitivity of pull-through and capacity to fluctuations in interest rates.  This is the biggest influence over loan pricing at the moment.

Also some desks may price a specific lender out of the market because they're slow to review files for purchase. Or maybe secondary is "cushioning" one lender's offers because their back shop technology is antiquated and the delivery process is overcomplicated. Not what you want to deal with when you're more focused on ensuring your loans are closing and shipping on time.

The September FNCL 4.0 is +0-08 at 102-03. The FNCL 4.5 is +0-06 at 104-11. These are the session high prints. Up in coupon is getting crushed as the curve flattens and the stack further compresses. Surely this can't be a function of more "Rapid Refi" chatter? I thought that rumor was played out?  Prepays print tonight=Opportunistic profit taking today

Wells should be repricing for the better shortly. The other majors offered better rebate out the gate but still might improve the lower note rates a few more bps. Be on the watch for recalls. Let me know if you get em.

This morning one of my buddies shared a story with me. He had a loan officer ask him if it was possible to offer 4.125% to one of his consumers. Unfortunately my buddy had to decline. He didn't want to mess with the 3.50% MBS market. His words to me: "Let someone else take on the additional risk. I don't want to trade 3.50s until that market is open for swimming". Read swimming as "liquid".

Think of it this way when you are wondering why lenders have extra "juice" in their rate sheets...

If rates did fall below 4.25% and consumers started requesting renegotiations, secondary would be a heap of trouble on their current 4.0 and 4.5 positions. An influx of renegotiation requests or spike in fallout would be a two headed monster for lock desks. An expensive endeavor to say the least. Proper risk management practices force secondary to build up some cash reserves to ensure their P&L was able to withstand fallout shock.

This is another reason why you are seeing a floor in mortgage rates and will likely continue to do so unless 3.5s trade forward in size. I'm seeing 3.5 options trade, but not many folks are hedging forward loan supply with 3.5s. Who wants to trade that much duration when the "flight to safety" starts to unwind. Can you say: BLACK WEDNESDAY duration shedding event?