MBS Live: MBS Morning Market Summary
Times are strange in early December.  First off, we have bond markets generally stronger despite Friday's better-than-expected NFP.  While we've been able to account for that strength in several ways, it's not any less weird to see it playing out.  Then there's the potential budget deal headlines swirling in the Senate.  This is odd because we're nowhere near the next debt-ceiling expiration (though the 'ulterior motive card' is easily played as Congress is out for the holidays after this week). 

Whatever the case, the snowball rally that rolled into the morning hours came to a halt just after 9am.  Fannie 4.0s topped out at 103-30 and 10yr yields bottomed out at 2.799.  Momentum was absent for the better part of the hour and started to drift off heading into the 10am hour.  10's moved up to 2.82 but held their ground there.  Fannie 4.0s fell to 103-23, but are now back up to 103-26.  Senate headlines could cause some volatility into the afternoon, and the 3yr Auction at 1pm is a minor potential market mover.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
95-23 : +0-05
FNMA 3.5
100-04 : +0-05
FNMA 4.0
103-25 : +0-07
FNMA 4.5
106-21 : +0-09
GNMA 3.0
96-26 : +0-04
GNMA 3.5
101-08 : +0-05
GNMA 4.0
104-17 : +0-05
GNMA 4.5
107-08 : +0-08
95-10 : +0-05
99-29 : +0-05
103-18 : +0-08
106-14 : +0-10
Pricing as of 11:05 AM EST
Morning Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribers this morning.

11:00AM  :  Bond Market Snowball Ran Out of Steam; Early Hint of Negative Reprice Risk
Fannie 4.0s have fallen to levels just on the edge of negative reprice risk for some lenders. This heavily depends on the time of day that an initial rate sheet came out. Fannie 4.0s are up 4 ticks on the day, but down 4-5 ticks from the morning's highs and 3-4 ticks from the first wave of lender rate sheets.

If we leveled-off here for the day, we'd probably avoid reprices, but the risk that we won't is reinforced by 10yr yields prodding at their highest levels of the day. Just as momentum carried us in one direction earlier today, it can take on a life of its own if it begins heading too far in the other direction. 10's are currently still 4 bps lower on the day, but up from 2.80 to 2.817 in the past hour.

A potential budget deal in the Senate may contribute to selling pressure if more developed headlines come across.
9:43AM  :  Short Covering Snowball Rally Pushes Treasury/MBS Prices Much Higher
We've been talking about 'short-covering' quite a bit over the past few days and it continues to be a factor in the positive and paradoxical NFP counter-attack (i.e. bond market rallying despite stronger NFP on Friday).

We've also been discussing the limited trading motivations inherent at the start of this week, leaving traders to observe and react to other trade flows and technical levels. We're in a situation now where both the tradeflows and short-covering are feeding on each other.

On one side, trades based algorithmically ("algo trading") on technical levels are subsequently triggering short positions to cover (i.e. forcing them in to buy bonds, thus covering their short). As those shorts become buyers, prices advance further, creating new technical levels for algo traders to buy.

Long story short, it's like a 2nd grade soccer game. Everyone is following the ball and the ball is moving toward one side of the field. The ref will probably blow the whistle before 10yr yields break past 2.75 and we're already seeing resistance at 2.80, but that's still made for a solid 5.5bp drop so far today.

MBS, for their part, don't get to participate quite as much because there's no inherent algo trade, and less liquidity than Treasury futures (which is where the Treasury algo trading takes place) overall. Fannie 4.0s are still up 10 ticks on the day at 103-27.
Live Chat Featured Comments
A recap of the featured comments from the MBS Live Dashboard's Live Chat feature, utilized by hundreds of industry professionals each day.

Jason York  :  "right now, my 3yr is .5 better than my 5yr"
Steven Stone  :  "5s have been priced much better "
Steven Stone  :  "im seeing investors dropping fha 3 yr arms entirely"
FPH  :  "Are you seeing 3yr arm rates at beter levels than your fixed?"
Steven Stone  :  "all FHA hybrid arms do"
Jason York  :  "does an FHA 3yr ARM use the start rate to qualify?"
Matthew Graham  :  "As far as I know, the only AMDC is the one you see, and you will no longer see it (unless you're in one of the 4 states specified) next Spring."
Christopher Stevens  :  "not going away in my great state of NY"
Ross Miller  :  "MG, the 25 basis point adverse market fee that Is going away, is that from the actual rate sheets or is it in the Fannie/Freddie rate sheets?"
Matthew Graham  :  "RTRS- U.S. OCT WHOLESALE SALES +1.0 PCT (CONSENSUS +0.4 PCT) "
Christopher Stevens  :  "MG- great explanation of g-fee increase last night."
Andy Pada  :  "US Bank came out with their QM calculation analysis. They will include all discount points in their analysis; presumption that discount points are NOT bonafide."

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