For bond markets, today has largely been about holding ground and retrenching.  The most relevant example came during the overnight session--just before the domestic open--when 10yr yields bounced convincingly off the 1.84 pivot point.  Keep in mind that this is one of the most important long-term inflection points for domestic interest rates.  Since breaking below last Wednesday, it's seen a lot of action and most of it supportive.

The resilience is also being supported by a bounce lower in equities and oil.  Perhaps a better way to say this would be that equities, oil, and bond yields are moving in unison, away from risk.

On an MBS-specific note, things are a little less awesome.  Volatility always takes a toll on MBS' ability to follow Treasuries to lower yields and today is no different.  A compounding issue is the 'flattening' bias in the yield curve.  This means that longer duration Treasuries (like 10's and 30's) are gaining much more ground than shorter durations (like 2's and 3's).  Although the calculations are subjective, most market participants would agree that the average mortgage in a Fannie 3.0 pool is nowhere close to having a 10yr life expectancy.  In other words, it has a shorter duration.  And since we already know that shorter duration debt is underperforming today, we have yet another reason for MBS to be lagging the 10yr move.

Back to the topic of volatility now...  Perhaps more insidious than its effect on MBS prices is its effect on lenders' ability to adjust pricing to match MBS moves.  This is a very simple concept when you get down to it.  The wider the range of potential near-term movement, the more expensive it becomes for mortgage lenders to do business.  If the market goes one direction, lock fallout can increase.  If it goes the other direction, lenders can have a hard time getting a high enough price for loans that locked at lower rates (i.e. higher prices).  Of course, much of this depends on a lender's specific hedging strategy, but the fact remains that hedging, in general, becomes more expensive as volatility increases.  And so it is that a big move in the opposite direction from the previous move isn't having the expected impact. 

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
102-25 : +0-09
FNMA 3.5
105-07 : +0-06
FNMA 4.0
106-26 : +0-03
2 YR
0.4750 : -0.0126
10 YR
1.7830 : -0.0478
30 YR
2.3900 : -0.0562
Pricing as of 1/20/15 12:01PMEST

Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
9:28AM  :  Bond Markets Resilient Overnight Despite Stronger Data in Europe

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Jeff Anderson  :  "There is no 24 month rule. It's investor specific. The Homeowner's Protection Act removed any mandatory time frame for MI staying on a loan."
Jason Anker  :  ""
Sung Kim  :  "the only thing certain about that is when it will auto drop, everything else is servicer dependent"
Jason York  :  "I have a borrower that is purchasing a shortsale, in which they are putting down 10% at purchase, but should have more than 25% equity upon closing. they would be doing monthly BPMI on a conventional loan. is there a rule that says they have to keep that MI for a certain amount of time?"
Sung Kim  :  "my u/w called an investor on it, if they werent obligated to the note and title only then they are not subject"
Ben Biscoe  :  "have an UW who ran a fraud report and found it, I wasnt aware of it, she is saying they are subject to the wait"
Ben Biscoe  :  "Question on conventional foreclosure waiting periods, do those apply to a borrower who was on title to a home that was foreclosed on but not on the actual loan. Are they subject to the wait? Haven't ran into this before. I am assuming so. "
John Sheadel  :  "I'd kill for a little stability at these levels. "
John Tassios  :  "good to see getting back 1/2 our friday losses"
Matthew Graham  :  "no. Europe is in trouble. Inflation keeps falling and economic growth prospects look dim. Germany just barely staved off recession with the last GDP reading. If QE is seen as an effective signal that the central bank has their backs and can overcome German central bank opposition, it could improve growth/inflation prospects, thus hurting bond markets. "
Spencer Packer  :  "What is the "cause and effect", if you will, chain for that, MG? EU securities as competition for US?"
Matthew Graham  :  "It depends on the particulars (go figure). The more effective it seems to be, the worse I think it is for bond markets in the big picture. Paradoxical, I know."
Spencer Packer  :  "I'm sure this has been talked about, but what is the general consensus regarding the market reaction to EU QE? Will it improve MBS prices or worsen? And why?"
Christopher Stevens  :  "Jay Brinkman's (retired chief economist of MBA) take on GSE reform"
Victor Burek  :  "seems treasuries might be following oil this morning"