Throughout late 2011, Fannie 3.0's truly took on a role as "it that shall not be named" in the Live Chat window on MBS Live! Indeed, at almost no point in 2011 did it make any sort of sense to even consider the existence of Fannie 3.0's as they simply weren't trading. But that fact has been gradually changing into the new year with 3.0's seeing their best day of new origination on Friday. 

If this excites you, don't get too excited yet. Volumes are still rather low overall and quite low compared to 3.5's, but certainly worth keeping track of at this point. Interestingly enough, the same 2.5 points spread in price between 3.5's and 3.0's that was seen between 3.5's and 4.0's acted as sort of a line in the sand before the lower coupons began trading more actively. 

Friday's prepayment report also helped out, allaying some concern about the recently "fast" prepayment speeds in lower coupons. With that in mind, working our way down to 3.0's will be a delicate dance--one that can't happen too quickly without lenders risking the cannibalization of recently originated 4.0 coupons, though 3.5's seem at less risk relatively. So there will be a fair amount of resistance to 3.0 origination for that reason as well as the simple risk involved in delving into markets that haven't previously existed (and that could be a very unhappy place to be if benchmark rates correct in a meaningful way). 

But as long as 10 yr yields are calmly range-trading near 2%, healthy trading in 3.0s is an increasing possibility. As we said, it will just take time. As for today, there have been a decent number of quotes though 3.5's are still much more active. Fannie 3.5's are up 8 ticks on the day at 103-11 and 3.0's are within the 2 point spread, currently 101-13. Here's a clip of the action in 10's and 3.5's from MBS Live:

With respect to the concept of "10 yr yields calmly trading around 2%," here's how that general phenomenon has played out graphically:

Price spread between Fannie 3.5 and 3.0 MBS: