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30yr Auction Reinforces Resistance, Stocks Push Back
Posted to: Micro News
Thursday, December 13, 2012 1:23 PM

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Both MBS And Treasuries were peeking across the fence of intermediate technical levels set up by yesterday's sell-off. Floor/Ceiling behavior was evident at 104-22 in Fannie 3.0s as well as anything from 1.70 to 1.714 in 10yr yields. Fannie 3.0s had edged up to 104-24 just ahead of the auction and 10's made it all the way to 1.704.

The auction came in weaker than expected with a 2.50 bid-to-cover versus a recent average closer to 2.60 and a stopping yield of 2.917 versus an expected 2.882. Bond markets initially pulled back to weak side of their technical lines in the sand. But pervasive weakness in equities markets combined with the small amount of "relief bid" following the week's supply needs (no more Treasury auctions to bid on - sometimes a marginal benefit even in the absence of strong results) helped bond markets get right back to the doorstep of those pivot points.

They haven't broken yet (in fact MBS just bounced off the 104-22 ceiling and 10's are back up to 1.723) but the fact that we're NOT selling-off any further feels like a decent enough turn of events considering the weak auction results. It's been a bumpy ride so far today, relative to recently narrower ranges leading up to the FOMC, but we should avoid excessive negative reprice risk if Fannie 3.0s continue to trade at 104-16 or above (currently at 104-19, 5 ticks weaker on the day). That said, some lenders may not enjoy the elevated level of volatility, despite the fact that outright prices aren't low enough to justify a reprice in and of themselves.




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