MBS Pricing Snapshot

It's too soon to know how this will play out but MBS prices have taken a turn lower--maybe. It's difficult to say with certainty how big of a turn it would be because it's driven in large part by a lack of liquidity and a knee jerk reaction to developments in the "gov shutdown" battle.

As far as MBS Prices are concerned, the risk lies in Fannie 3.5s being down 8 ticks from their highs--101-21 vs 101-29 previously in Fannie 3.5s. The clues about liquidity lie in the fact that most of that move happened in 1 quote change.

Even so, we can't rule out that this is where prices will head into the afternoon, even if they bounce back moments after this alert goes up. Therefor, negative reprice risk is making an entrance now. Not all lenders would be affected, but those who priced late in the morning or who repriced at the highs are at some level of risk already.

Seemingly out of nowhere, MBS are off to the races with Fannie 3.5's up 13 ticks at 101-28. This followed a break of 2.62% technical resistance in 10yr yields after Fed completed today's Treasury buying operation.

We're not necessarily looking at just one source of inspiration though. There are "gov shutdown" headlines around the same time, as well as more political drama in Italy. Month/Quarter-end buying also can't be ruled out as providing a pervasive supportive tone.

Whatever the case, the break in Treasuries hasn't been anything overly special, with yields just down to 2.61 after bouncing at 2.62 earlier. The MBS gains, however, have been sufficient for a few positive reprices, and that possibility remains while prices hold here near 101-28.