Heading into the last hour of trading, MBS have undone the past three days of gains.  Such a statement is a bit more palatable when the MBS hit their best levels in almost a year during those three days.  Even so, it did result in some negative reprice pressure this afternoon.  After being up a quarter of a point this morning, Fannie 3.5s are currently down 5 ticks at 102-04.  10yr yields are up almost 3bps at 2.546

As noted in the a few of the alerts today on MBS Live, the selling was fairly precipitous and in line with a thinly traded bond market being pushed around by bigger tradeflows related to corporate debt hedging and the resulting technical snowball.  That's less confusing than it sounds.

All this means is that firms issuing large amounts of corporate debt can hedge some of their risk during that process by taking a short position in Treasuries (aka "selling").  In a market that might otherwise be fairly quiet, these bigger instances of selling can cause a bit of a snowball effect as other traders, who may be taking a majority of their cues simply from trading levels on days like today, can only see that some big trades are coming in suggesting higher rates. 

If those traders were positioned for lower rates and needing to protect against a move higher, they could quickly be forced to sell if rates rose enough during the day.  The "snowball" aspect comes in because that selling in turn raises rates even more, which increases the odds that yet another trader will now have hit their 'stop loss' level and also be forced to sell, perpetuating the cycle.

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
98-04 : -0-06
FNMA 3.5
102-05 : -0-04
FNMA 4.0
105-07 : -0-03
2 YR
0.3468 : -0.0162
10 YR
2.5445 : +0.0265
30 YR
3.3900 : +0.0430
Pricing as of 5/19/14 4:06PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
3:43PM  :  ALERT ISSUED: Yet Another Leg Down; More Negative Reprice Risk
1:46PM  :  ALERT ISSUED: MBS hit New Lows; Negative Reprices Now More Likely
12:53PM  :  ALERT ISSUED: Slightly More Weakness Now; Slightly More Reprice Risk
12:22PM  :  ALERT ISSUED: Prices Trending Lower, but Still in Positive Territory; Limited Reprice Risk
11:05AM  :  MBS and Treasuries extend gains despite stock market strength
9:30AM  :  Bond Markets Unchanged Overnight, Slightly Improved into Domestic Session

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Craig Stanislaw  :  "Is anyone still getting away with using a CPA letter for using business funds for down payment?"
Craig Stanislaw  :  "Huh, we're being told from Fannie and Freddie that we need to do a cash flow analysis now and a big bank in the area is stating they can still just use a letter from a CPA. How long ago Clayton? "
Craig Stanislaw  :  "When business assets are used for down payment and Closing Costs, Financing Costs, Prepaids/Escrows and reserves, the assets must be verified in accordance with the documentation requirements in Sections 37.20 through 37.23 and must be related to the business that the Borrower owns that is documented in the Mortgage file. Because the Borrower's withdrawal of assets from a sole proprietorship, a partnership or a corporation may have a negative impact on the business' ability to continue operating, the impact of withdrawal must be considered in the Seller's analysis of the Borrower's self-employed income. As part of the analysis, the Seller must document a cash flow analysis for the Borrower's business using the individual and/or business tax returns, as applicable. The Seller may perform the required analysis using any format that enables the Seller to determine that the withdrawal of the funds for the down payment and Closing Costs, Financing Costs, Prepaids/Escrows and reserves will not have a detrimental effect on the business The Mortgage file must contain the Seller's written cash flow analysis and conclusions."
Brent Borcherding  :  "Regarding large unsourced deposits, can anyone provide the guides stating that if you can't document them and they are NOT needed for cash to close or reserves that they are acceptable?"
Jason Harris  :  "Brent.....if the deposit is greater than 25% of gross monthly but cannot be souced I am not sure it is addressed well in guides. I usually get an LOE and then it is underwriter discretion....but if you don't need the funds I would think they would clear"
Roger Moore  :  "i really hope guidelines loosen up as it relates to large deposits"
Roger Moore  :  "absolute overkill"
Michael Ullmann  :  "RM: overkill is an understatment"
John Paul Mulchay  :  "BB, sourcing funds has gotten to be such a logistical pain esp when not needed or being utilized for transaction."