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MBS Fall To Mid-Range Support After Press Conference
Posted to: Micro News
Friday, December 21, 2012 10:38 AM

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Overnight news that House wouldn't even vote on the "Plan B" tax and spending bill sent equities markets into a tailspin and helped 10yr yields make a run toward their recent 1.75 technical boundary (currently shared with the 200-day moving average). 10's actually broke through and made it 10 1.737 by 9am but bounced higher following a recent press conference with Speaker Boehner and Majority Leader Cantor.

That was the latest in a series of market movements that showed a disregard for economic data in favor of Fiscal Cliff headlines and year-end positioning. Earlier in the morning, a big block trade in 10yr futures hit 5 minutes BEFORE economic. These aren't Vegas-style "bets" ahead of an event, but rather a response to overnight news, or the covering of a short position taken out in early December or mid November when yields were in the high 1.5's.

Further to the point of "bigger fish to fry," this morning's economic data was unanimously better-than-expected, yet bond markets extended gains--not their standard move following stronger data. However, there was perhaps a brief pause for consideration. MBS opened at 104-18 and moved up to 104-22 by the time data hit. There was some back and forth just after 8:30am data, but they kept on improving to 104-26 before bond markets rand out of steam at 9am.

After some well-contained drifting ahead of Consumer Sentiment data and the Boehner/Cantor press conference, stock prices and bond yields began rising together. This took Fannie 3.0s back down to 104-20, but they've since recovered to 104-22. Bottom line, we're about half way between opening levels and the highs of the morning, with opening levels themselves having fallen in line with yesterday's highs. Early rate sheets are in line with the highs of the day, so extra caution is required there, but thankfully, 104-19 / 104-20 is emerging as a good intraday technical support level, and this could serve as a good line in the sand for any reprice risk that emerges later in the day.

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