Hey, remember oh so long ago (this AM), when we wrote the following:
A POTENTIAL UBER ALERT WARNING:
Granted, the times are unprecedented and the past is no guarantee of
the future. But we simply do not see rallies this aggressive persist
without at least somewhat of a correction. We don't see 5 day gainers
that often (5 days of MBS gains, not the olympic dive). We don't see
uninterupted gains this intense continue to be uninterupted for long.
Considering what caused the sell off, however, it's not out of the
question to just sort of "level off," but there's an equal chance of a
correction that causes price losses large enough to warrant extra
vigilance on one condition. The one condition that drives the cause
for heigtened alert would be the extent to which you feel the "love"
from lenders. If we have this almost 3 point rally in less than 2
weeks as we've had, but your YSP has only improved by 1.625, things
aren't as urgent. What you really need to watch for is a high
correlation between recent gains in MBS and improvements in rate
sheets. If someone is "passin' it on," It would be hard to talk me out
of locking at the first sign of the correction. The only challenging
question there is "do I lock today or float to tomorrow?" Not only
can't I ever tell you with 100% certainty, I can't even give you my
best probability until we see how the day ends up and you have a chance
to compare that to how much lenders coughed up. So we'll put a cap to
this slightly more detailed discussion on locking by the end of the day.
Not only are we out of the trend channel at this point, but also now testing some of the more important support levels with this current phase of profit taking. We are STILL, however, positive on the day as the MBS PRICES page shows. Reprice risk depends on lender behavior so far today. Rather than address every potential eventuality, we'll leave it at the following...
10 Yrs have broken their ceiling (barely) and are now at 3.65. MBS looks to be suffering a bit with both the 5.0 and the 4.5 itching to break a floor suggested by previous lows this AM. Look at the time on the charts (in eastern time) that corresponds to your lender releasing rates. Then do some simple match to find out how much was gained before any reprices you've gotten. If current levels are 4 ticks or more down from where the reprice should put you, you may be looking at a potential reprice for the worse. In fact, given the intensity of the recent downtrend, it's more than possible that any lender who gave out an improvement today will be taking some or all of it back. This would be where short term deals take a serious look at locking.
Longer termers? We're still on the high side of the previously discussed "desert" and unless we go into that, or better yet, below it, floating longer term deals would still be acceptable, but willing to accept small losses in order to see what the next few sessions bring. If you simply don't want to lose anything beyond current prices, lock 'em up.
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Two Japanese men are detained in Italy after allegedly attempting to take $134 billion worth of U.S. bonds over the border into Switzerland. Details are maddeningly sketchy, so naturally the global rumor mill is kicking into high gear.