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MBS Outperform While 10's Bounce At Range Boundary (Again)
Posted to: Micro News
Thursday, January 3, 2013 9:20 AM

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Everything has been fairly cut and dry so far this morning. The overnight session was non-existent at first with Asian markets closed for New Year Holidays still and European trading relatively muted. Both 10yr yields and MBS crossed the 8am mark in just slightly stronger territory than yesterday's latest levels, but within the session's respective trading ranges.

Morning trading so far has delivered on expectations in several ways:

- ADP's Employment Report was the focal point, where much stronger-than-expected private payroll creation sent bond markets into a bit of an early morning tail-spin.

- But mitigating the tail-spin were a few other familiar fuzzy blankets, the first of which being the increasingly reliable 1.86% support level for 10yr yields (hit it y'day, hit it again after ADP) though this makes it less of a warm fuzzy whenever it's broken.

- Also familiar is recent MBS outperformance. Case in point, Fannie 3.0s are 4 ticks into the green while 10yr yields are still half a bp higher on the morning. Or if we want to look at things relative to y'day's ranges, MBS are just poking their head above y'day's highs while 10yr yields are right in the middle of their range.

Bottom line, factoring out absentee Asian markets, volume continues to demonstrate "back to business" levels, and bond markets continue to trade the range, while MBS continue to outperform. ADP data was obviously a mini-shock, but not a big enough one to confirm a breakout of the aforementioned range. Results may vary after NFP tomorrow morning or with unforeseen headline tape-bombs today, but otherwise, so far so good for confirming that the "pre-fiscal-cliff-deal" range is the same as the "post-fiscal-cliff-deal range."

Next up:
- Fed Treasury buying at 10:15
- FOMC Minutes at 2:00pm

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