After falling abruptly this AM on better than expected economic data, the range in MBS and tsy's moderated into levels that left fannie 4.5's down only 5 ticks on the day. Earlier, they had been down over 10 ticks. But in the same way that prices have riden a trend of improving lows, so too have they been capped by lower highs, unable to break through resistance offered by yesterday's closing levels. After dropping to it's lowest levels of the day during the bond rally around 10AM, the S&P rallied, turned positive, and is now continuing it's push into multi-month highs. The index is currently just over 1052, which is not doing anything to help the bond market.
In fact, both MBS and tsy's had a shot for a positive breakout on the above triangles until just recently. Whether it's the burgeoning stock rally, or the multiple failures of the bond markets to break through yesterday's worst levels, the early indication from the technicals is not friendly for bonds. We overlayed the yellow and red zones from yesterday's closing post showing the upper limits of last month's range. Though a move back into that trend wouldn't be truly confirmed until tomorrow, considering that the alternative for MBS would be to face off against the undefeated 101-00 price level, don't leave lower prices out of your game plan for the near term.
In other words, negative price pressures are increasing intraday. To make matters worse, tsy futures are moving lower on much higher volume than yesterday. Even here around 1:00pm today's volume is already higher than yesterday's total volume. The futures contract is currently at 117-04. With the firmest support around 116-25, there is some room for yields to move higher into the afternoon if stocks oblige by way of extending gains. All in all, nothing catastrophic at the moment as both MBS and tsy's are more or less in the middle of today's range. That said, it's a situation that requires careful attention, so be ready to act. We'll let you know if things move significantly enough that you can either take your finger off the lock button.
MBS Market Alerts
