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Support Holding; MBS Bouncing Back For Now
Posted to: Micro News
Wednesday, June 04, 2014 12:28 PM
Bond markets were ultimately able to hold the line after hitting the weakest levels of the day just after 10am. Unfortunately, the bounce didn't happen fast enough and even now, hasn't been around long enough to avoid a few of the negative reprices we warned about in the last alert.
That said, the longer that defensive line is held (around 102-04 in Fannie 3.5 coupons or 2.612 in 10yr yields) the better our chances become of avoiding additional reprices. At this point, we could still see a few stragglers who have already decided to reprice, but lenders who were on the fence about it are likely holding off for now.
Here's one constructive way to look at the last 5 days of pain--simply an endzone to endzone exploration of the pre-ECB trend running it's course up to the last possible day before the ECB Announcement itself. (Adding emphasis to this notion of "full exploration of the range, right to the last minute," from European markets' perspective, trading levels reached the far endzone right at the end of the day. Yields are only falling domestically because Europe is closed).
NOTE: the relevant part of the chart for this discussion is the very last spike inside the yellow lines--basically just the move up from last week's lows to today's high yields.
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