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Auction-Related Volatility Fades, Leaving MBS, TSY's Largely Unchanged
Posted to: Micro News
Wednesday, November 07, 2012 2:02 PM

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In and of itself, today's 10yr Treasury Auction was quite a bit weaker-than-expected, with yields coming in almost 2 bps higher than expectations and the bid-to-cover at historically low levels. But when you consider that 10yr yields are over 10bps improved from yesterday's close and that they rallied to their best levels of the day BEFORE the auction, a bit of weakness in the auction results is completely palatable, and markets are bearing that out presently.

In fact, had the auction happened half an hour earlier, the metrics used to measure its strength could paint a completely different picture. Reason being, yields are currently UNDER the levels seen from 10:30am - 12:30pm., and with a brief exception during the lead up to the auction, essentially grinding around the lows of the day (also the lows of the past 3 weeks).

For their part, MBS are nonplussed, with MBS briefly revisiting pre-auction lows and then continuing to trade sideways in the day's existing range. Volatility has been generally decreasing since the auction and Fannie 3.0s are hovering around 105-10, which is 25 ticks up on the day.

We've seen one positive reprice on the stability and wouldn't rule out a few more. That said, widespread positive reprices aren't exceedingly likely unless we see more concerted gains.




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