MBS Pricing Snapshot

MBS and Treasuries are at or below their lowest prices of the day after an unexpected jolt of volume and positivity hit stock markets. S&P futures have seen their two biggest volume surges of the day at 1:19pm and 1:40pm respectively. We don't know what's behind those pops, but we do know it's exerting some pressure on bond markets. Reprice risk is shifting negatively with Fannie 3.5 MBS at 103-20.

The 7 year Treasury auction was Good even if not stellar. There were few detractors from this one--basically right on the money with a small 'stop-through,' and 2.83 bid-to-cover vs recent average of 2.81. Indirects were just slightly off the pace at 38% vs 40% avg.

Bond markets haven't reacted much at all. The auction was a non-issue and will not produce any noticeable sell-off or rally. Though the first movement after the results was slightly positive, we've since moderated back to 'flat,' and what little volume there was, is dying down for now.

- Recent Average Bid-to-Cover = 2.81

- Stop-throughs (high yield comes in lower than "when-issued" yield at 1pm) are rare, but the last two examples have been big.

- Indirects have averaged around 40%

- This is close to lowest if not the lowest 7yr yielding auction on record (should be). Next closest was 1.359%. Current WI (when-issued) = 1.349, so it could be close.

Bond markets have been flat at strong levels all day. The street knows that 7's are a tough auction, and we're still thinking that a decent take-down is a non-issue or net-positive as long as it's close to averages (even if it's slightly weaker).