There are several different iterations of "Shutdown Limbo," they're all essentially the same dance at the end of the day, especially this one! Reason being: prices/yields ended the day inconsequentially far from Friday's latest levels. In this version of the dance, there was actually a fair amount of movement during the day. It wasn't the first time we've seen MBS move more than 3/8ths of a point from peak to trough, but the fact that opening levels were close to said peak and closing levels closer to the trough made things seem very bumpy for a day that only ended up being 2/32nds worse than Friday's close.
There were no relevant data releases or headlines to blame for the movement. Indeed, volume was as low as it's been in at least 2 months, with trades only happening due to necessity. As odd as it is to consider, the primary goal right now for bond markets is not to "make money," but rather to lose as little as possible while staying nimble enough for the next big move.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing
is available via MBS Live.
Pricing as of 4:06 PM EST
Afternoon Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts
and updates issued via email and text alert to MBS Live subscribers
MBS Turn Red; Negative Reprice risk Remains
Light volume and even lighter liquidity are greasing the skids for a seemingly abrupt move into negative territory with a surprising absence of motivation. Of course if we zoom out to wider points of view, the day's activity looks completely meaningless and sideways. Both MBS and Treasuries are simply continuing the trends from last week and had simply been nearer the stronger levels--leaving plenty of room for a retreat back to center of last week's range.
From an intraday standpoint, that still means negative reprice risk. Between the first reprice alert and now, there's additional risk, especially for lenders who haven't already repriced. Fannie 3.5s are now down 3 ticks on the day at 101-23. 10yr yields are still in positive territory on the day at 2.6338.
Negative Reprice Risk Increasing
At the time of the last update, Treasuries and MBS had both been holding on to supportive levels despite being in the weakest territory of the day. That support is now slipping somewhat and Fannie 3.5s are now 7 ticks off the morning highs (still 4 ticks higher vs Friday). This is enough for negative reprice risk for some of the faster-acting or earlier-pricing lenders.
Off Highs, but Holding Ground for Now; Reprice Risk Contained For Now
Fannie 3.5 MBS are more than 4 ticks off their highs of the morning. Some of the early lenders were out with their first rate sheets during that time, meaning negative reprice risk can't be completely ruled out, but we wouldn't be surprised if we didn't see any.
Fannie 3.5s are currently still up 7 ticks on the day at 102. Risks would increase if they dip to 101-30 or below. 10yr yields are still down 3 bps on the day at 2.614.
Live Chat Featured Comments
Joe Ridings : "Thats is my thought too, payment not comming from treasury so would be bad but not the same degree"
Matthew Graham : "but both would likely be moving down in price, swiftly. "
Matthew Graham : "and to be clear, "better" means "less awful than TSYs""
Matthew Graham : "All anyone could do is guess. I have a hard time guessing because it's not going to happen. Never say never, I know, but I'd be heading to Norway or something if it did. I think MBS would fare better because payments wouldn't be coming from Treasury. "
Joe Ridings : "Thats been my response too JR."
John Rodgers : "US Default would crush us. It won't happen because it is political suicide"
Scott Rieke : "MBS would suffer. UST are the underlying 'commodity' - or benchmark bond - in the bond market. If the benchmark collapses, all others do. One would assume MBS would perform worse. IMHO"
Joe Ridings : "Matt, this question may have been asked already but here goes... hypothetically if the US were to default on its debts, treasury prices would plummet, would MBS suffer the same fate or would they be more attractive than treasuries at that point."
John Rodgers : "Its the same storey over and over. We lost our jobs and then our house....."
Dirk Postupack : "Its sad MD.......over the ppast 4 months I have asked those people to get their free credit reports and we can take a look at them together, and not one person that I have called back to see of they got them has bothered to do anything."
Dirk Postupack : "True JY........getting a ton of sub 580 people calling in."
FPH : "FC? Foreclosure?"
Timothy Baron : "Same here JR."
Jason York : "thats what happens when things get slow"
Mike Drews : "me too JR"
John Rodgers : "all of the sudden I have multiple buyers with prior FC. I guess those people are coming back to the market"