Mortgages have fallen sharply from their best levels of the day after stocks bounced from session lows.

Although the Fannie Mae 4.0 is still in the green, up 4/32 at 100-30, we're now 12/32 off the intraday high of 101-10. This will lead some lock desks to recall rate sheets and reissue for the worse while others will simply delay their initial release until the market finds stable ground. Either way loan pricing appreciations will not be as robust as originally expected. MBS are however still in positive territory so rebate should not be worse than yesterday's indications.

The sharp MBS retracement is illustrated in the chart below...

The culprit behind falling bond prices is the stock lever. S&P futures are almost back to their pre-jobs data level. We'd expect 1308 to provide firm rally resistance though.

While the stock lever is exerting negative pressure on bonds we're not seeing much of a push-back from bond traders, which isn't surprising when one considers that Treasury will auction $66bn in debt supply next week. Don't let this price action fool you.  The broader trend in bonds is still bullish, but this behavior should serve as another reminder of the risks associated with floating loans that must be locked on a short timeline. Even in a broader bullish trend, back-ups and reversals are always a threat, especially when Treasury is scheduled to sell debt in the week ahead.