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Negative Initial Reaction To Auction. Trying To Hold Ground
Posted to: Micro News
Tuesday, January 29, 2013 1:30 PM
The 5yr Treasury Auction was broadly in line with recent average levels of demand as well as the expected yield award (as suggested by "when-issued" levels at 1pm). The fact that the auction was essentially average, EVEN AFTER four sessions of significant weakness is perhaps indicative of a worse-than-average reality for bond markets.
In other words, the auction itself may have been average, but we would have liked to have seen a stronger result given the recent cheapening of Treasuries if we were to read any positivity into the result. MBS and 10's have clearly not seen the auction as any reason to move back in friendlier directions an instead have weakened slightly. The stock lever continues to be in play with prices rising before and after auction time.
10yr yields are up to 1.9865 and MBS are doing their best to hold near the lows of 103-08 to 103-09. Reprice risk is still in the air, perhaps more developed than it was earlier. On the other hand, 10yr yields have put in highs as of 1:06 (at 1.994) and holding that ceiling has been salubrious for MBS in turn.
Bottom line, reprice risk lingers, but no rampant, directional sell-off at the moment. We'll let you know if that changes for the worse.
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