Treasuries Test Weakest Levels Following 5yr Auction
As a reminder, there is an unprecedented double helping of Treasury auctions on tap today. One of them--5yr Notes--just came in moderately weaker than expected. The high yield was .4 bps over the 1pm 'when-issued' expectation (though as much as .6bps according to some dealers). Demand was right in line with recent averages, coming in at 2.59 dollars bid for each dollar offered.
This made for some slight pressure on Treasuries in addition to the pressure that was already building following the Fed's daily buying operation that wrapped up just after 11am. 10yr yields just inched into their highest yields of the day at 2.722, but aren't stampeding into negative territory in high volumes.
MBS are holding their own with Fannie 4.0s down 5 ticks on the day at 104-16, still reasonably well off the 104-13 lows from earlier this morning. Although we have seen one negative reprice from a big bank, it's in no way attributable to MBS price action considering prices were, in fact, better between that lender's initial sheets and the reprice.
This does raise the possibility of "pipeline control" reprices for other lenders though. Just something to keep in mind if you've seen non sequitur reprice behavior in the past from a particular lender or otherwise get the sense that there's been heavy lock volume.
Bottom line: bond markets are under moderate pressure with one more auction to come at 1pm. There's decent-looking support in Fannie 4.0s at 104-15, which has been defended on several occasions so far (good line in the sand to watch for a shift into a weaker stance).