Treasuries and MBS Back Into Weaker Territory; Caution
The "caution" in the title is in effect if we don't hold our ground at current levels (2.95 in 10s and 102-16 in Fannie 4.0s). The positive reprice potential from the last update is gone and negative reprices could become possible, but are at bay for now.
Treasuries began selling shortly after the auction though not necessarily because of it. Additionally, the selling isn't so much of an outright bearishness on all Treasuries, but more focused on the longer maturities.
This can be thought of as an ebb and flow between maturities. 2's through 5's were being shunned relative to 10's and 30's earlier today. That was the safest move ahead of the 3yr auction. And now 3's are making up that lost ground after the reasonably strong auction.
They're not doing this by making gains themselves, but rather, by simply holding their ground while 10's and 30's sell-off. MBS are more attuned to the longer-dated Treasuries and thus are similarly off their best levels of the day.
This could ultimately look like a "working out of the kinks" in the yield curve with Treasuries not stampeding toward higher yields, but it's a bit too soon to call it. So far so good as far as holding the ground mentioned at the top of this update.