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MBS Risk Running Into Ceiling At Yesterday's Lows
Posted to: Micro News
Wednesday, November 21, 2012 10:04 AM
It's been a mostly unpleasant morning so far with some potentially disconcerting price action in MBS. Fannie 3.0s are currently struggling to get back above yesterday afternoon's lows. Even though we came in at 104-23, we quickly moved lower and have since seen several instances of resistance at 104-22, the same level that provided a firm floor of support yesterday afternoon.
That's a classic ratcheting technical movement that, at the very least, sets up 104-22 as an important level to watch for the rest of the day.
Things are somewhat similar in Treasuries, though the weakness is slightly more pronounced. Bond markets showed their hand early in the overnight session after Germany's Schaeuble said that there is no agreement coming this week on Greece and that Eurozone Finance ministers would meet again on Monday. At first, markets took the news poorly with equities futures dropping 10 S&P points in the blink of an eye. 10yr yields were a bit more sober in response, merely shedding 3bps. But it's the bounce that's more telling.
After losing ground initially on that news, bond yields and stocks both began rising steadily. Stocks leveled off somewhat into the domestic open and Treasuries did not (although they might be now, fingers crossed). The pops in price action and volume came NOT on the economic data, but rather were purely driven by tradeflows. Bottom line, accounts are lightening up on positions heading into what, for many, will be a four day weekend.
Please note, that does NOT mean we should simply tune out and disregard the negative price action today, hoping that everything will "go back to the way it was" on Monday. The unfortunate reality is that things can always go either way. Even if there's a temptation to "hope" that things turn around when markets get back to business next week, they'll be doing so from a point of greater neutrality, leaving the door equally open to re-engage longs or continue the sell-off.
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