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Stronger Overnight, Adding Slightly To Gains After Data
Posted to: Micro News
Thursday, February 21, 2013 9:22 AM

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After rallying back from yesterday's FOMC Minutes whipsaw, bond markets improved gradually at the start of the overnight session as Asian stocks sank. The "risk-off" tone continued into European hours with slightly weaker PMI data and major tradeflow considerations giving German Bunds a big boost around 3:30am NY time.

US 10's followed that more abrupt EU market movement by breaking through the recently insidious resistance at 1.9979 (uncontested since 2/13). Stronger Spanish debt auctions later in the morning helped turn the rally away in core debt markets with the onus left to domestic data for the next guidance.

After crossing 8am just a few ticks better than yesterday's latest levels MBS and Treasuries have both improved following weaker-than-expected Jobless Claims data. It's also worth noting that the gains make for a fairly linear rally from yesterday's overnight levels, so the 'extension of strength' explanation can fit here as well.

But to consider such an 'extension,' is to acknowledge the role played by "trends" in the current environment. That conversation wouldn't be complete without mentioning a few other trends. The most ancient among these is the uptrend in yields going back to mid-July which suggests firm resistance at 1.963 (or at least a high level of significance if 1.963 is broken). On the horizontal front, 1.95 is the center of a messier range of yields that have provided resistance and support in the recent past (as long as you give it about half a bp in either direction).

For MBS, 103-00 is the clear overhead pivot. With that in mind, we're currently coming off our 11th or 12th bounce at 102-31+ since 8:30am. Most of the data has printed for the morning, but Existing Home Sales and Philly Fed both arrive at 10am, and are essentially the last scheduled reports of the week.

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  • 30YR FNMA 5.0 110-19 (0-02)
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  • 30YR FNMA 5.5 111-26 (-0-04)
Recent Housing Data:
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  • Purchase Index 8.43%