This is one of the scenarios we were afraid of heading into today: low-volume snowball selling. This is a Treasury-specific phenomenon inasmuch as they are the targets of said selling, but MBS are reluctantly forced to keep some measure of pace with the benchmark. The reluctance to follow is obvious in the progressively tighter and tighter spreads all day long with Fannie current coupons moving in from 114bps to 108.5 currently.

For the most part, lender's initial rate sheets accounted for this and/or lenders are at peace with the low-volume, erratic Treasury movements being a factor of something other than reality, but with Fannie 3.5's down 12 ticks on the day and falling, a reprice for the worse isn't out of the question.