MBS Pricing Snapshot

MBS Prices have declined into the afternoon, but gently so. From highs of 104-23, Fannie 3.0s have edged lower to 104-20, briefly hitting 104-19 before bouncing up slightly. This isn't necessarily high drama on a day that's only managed a 6 tick range, and a majority of lenders are at little to no risk of negative reprices.

Keep in mind, however, that it's the day before NFP, and lock volumes can be heavy. More to the point, if you were planning on locking today, but holding out for potential price improvements, chances look increasingly slim that we'd see any. With price action like this, however, neither a positive or negative reprice could be ruled out completely.

Some lenders have been known to reprice for the worse for pipeline control or merely a negative/worrisome afternoon trend while others occasionally reprice positively simply because prices are holding their range. That said, there are only a few lenders that fall on either side of that coin.

While the weekly tally of the Fed's MBS purchases is unchanged on the bottom line at $15.1 billion, 2.5% coupons took an increased share.

This was concentrated primarily in Fannie 2.5's which saw $500 million of the $600 million total with Ginnie2 2.5's taking the other $100 million. Last week's total was $250 mln.

The lion's share of MBS buying remains squarely in favor of 3.0 coupons in 30yr fixed space with $4.75 bln Fannie 3's and $3.15 bln Freddie 3's. Ginnies accounted for $2.65 bln.

That means 2.5 coupons account for 4 percent of the total versus 1.7 percent last time--an acceptable and understandable increase given the falling rate environment.

MNI put out a story about an hour ago indicating that other ECB voters "wanted to do more at Thursday's meeting." Markets picked up hints of this during Draghi's press conference after he characterized the meeting as having a "very strong pervading consensus" for the 25bp cut. Draghi even went so far as to say the ECB is "technically ready" for a negative deposit rate.

The current rally since 11am is consequently a moderate extension of that initial move around 8:40am--further support for the same core concept, which is simply that more is likely on the way from the ECB unless things turn around meaningfully. The next meeting in June will coincide with updated forecasts and would be an even better opportunity for bolder moves.

The fact that bond markets and stock markets improved in unison is the clue that "central bank stimulus and/or easing" is behind the move. The rally in bond markets is far from intense though, and MBS are still 1 tick lower on the day, but that's 6 ticks off the lows and was good enough for at least one of the earliest pricing lenders to reprice positively. Treasuries broke even vs yesterday's 5pm levels and S&Ps are making a run for Tuesday's all-time highs.