MBS Pricing Snapshot

Earlier in the day, MBS had somewhat of an issue with limited bid-side demand combined with more than enough supply from MBS Originators (meaning either you're locking or they're hedging or some of both!). The result is wider spreads between the calculated yields of MBS coupons and various benchmarks such as the 10yr Treasury yield.

The wider the spreads between MBS and benchmarks, the greater the relative value. Partly because of that value and partly due to the drop-off in new MBS originations into the afternoon (sellers got their fill?), we're seeing spreads hold their ground and buyers on more equal footing or even outnumbering sellers.

It's not an out-and-out reversal of fortune for MBS, but it is a nicely timed show of support as spreads are no longer widening and 10yr yields are trading near their lows. The result is MBS at their highs of the day: 103-15 in Fannie 3.5s. Being 5 ticks up on the day, positive reprices are possible among the "early crowd" and one has already been reported.

Underlying all this is THE RANGE. Whether we're looking at Treasuries or MBS, the trading range of the past two weeks continues to offer firm support and resistance on either side. There's really not much to be said until we break higher or lower. For Fannie 3.5's, that's around 103-20. Everything else amounts to minor adjustments in the range, the most recent being in our favor.

Even from afar, today showed promise as having the potential to be "mostly dead" in terms of market moving data, and indeed, market movements themselves. Thus far, it has not disappointed with as close to ZERO motivation to take things in one direction or another. The first high in MBS prices was just under yesterday's high; the first low just above yesterday's low... Result: narrow range.

That said, with the 103-10 technical level underfoot and some recent underperformance, MBS have entered a zone where they could be looking a bit more attractive to some investors. Combine that with the fact that the bid-side of the market was fairly subdued this morning versus a relatively heavy supply of new origination (aka: "offer side" or "selling pressure") for such a tight day, and we have the ingredients for a supportive afternoon, provided that underlying benchmarks such as 10yr yields also do a decent job of holding their range. So far they have... So far so good.