At A Glance
- Stocks, Bonds and MBS all higher
- Caveat: no data, low volume, quarter end looming
- "since may" records: MBS prices, tsy yield, tsy future prices, yield curve flatness, tsy futures hit 200 day moving average.
- Few sellers seen, even diluted (?) fed bid overwhelms
- data finally arrives tomorrow, NFP on Friday
- key marks:
- 4.5 MBS ........... 101-12
- 10yr tsy yield .... 3.276
- S&P ..................... 1062.98
- SEPT 10yr TSY contract ..................... 118-06
For MBS, Tsys, and Stocks alike, no news was good news today as all three markets rallied amidst a lack of scheduled data, headline drama, or meaningful volume. Perhaps the point about volume should be mentioned separately as it's more of a result of the other factors. So although we're about to unveil a chart with multi month highs for bond markets, it's the caveat of volume that should serve to moderate our frenzied celebration of what ultimately might be "just numbers." Could the gains end up solidifying into something substantial and meaningul tomorrow? Sure, but more than a few times today, I found the world "ethereal" popping into mind. I'm not sure what it means really, but maybe it fits...
No, you're not hallucinating, that is indeed 101-12 on the 4.5 MBS chart. It looks even cooler on the long term chart which will show you that the "since May" phenomenon among other things. The three lines are three of the more important horizontal price levels at the moment. We're operating in a high enough range that PAR is no longer on the short list. Instead, 100-10 is the most lowest of the big 3 at the moment. Not only is this the ceiling that capped a good amount of summer trade and moved to support in August, but it's also the lowest point that 4.5's touched earlier in the year.
Yellow is simply the 100-28 that capped ALL post-Black Wednesday trade. We broke it recently and today would officially be confirmation of the break. Just above that is 101-07 which is high enough to have capped several weeks of prices during the earlier part of the year. it then acted as support be during the lowest prices of the Spring. We're actually THROUGH it today, as well as the 3.3 yield level in tsy's, but considering how hard we're about to rail on volume and data, you might not care either.
Yeah volume's low... Worse than HALF of the 30 day average for MBS. Considering the previous 30 days are no paragons of volume themselves, it's significant. To illustrate the example, we'll use tsy futures volume-weighted-average-price, which shows the price trend suggested by volume. If volume had been high today, we'd be seeing the yellow line getting a lot more vertical.
The attempt to sober enthusiasm notwithstanding, your course of action shouldn't be changed much. We have improved prices with UNCERTAINTY ahead. So knowing that AM data can cause a retracement any morning this week, it continues to be a good idea to look at deals that have BEEN floating where today's gains = money in the bank and lock with strength. As always, the greater confusion arises from the decision making process on new business.
Look at it this way, if we move any higher in price this week, it won't be because of anything that happened today or that drove prices up today. What does that mean?
DESPITE THE GAINS AND THE HIGH LEVELS ACHIEVED, WE DO NOT HAVE A SOLID INDICATION THAT THE NEW TREND WILL CONTINUE (YET...)
Of course it might continue, but again, if it does, we wouldn't know that yet based on today's trade. The moral of the story is not to scare you into locking ahead of massive losses, but rather to make sure that you're not taking today as some awesome positive indication of future movement. That will take some more doing... Could begin as early as tomorrow, but we need data... The latter parts of the week with NFP, Prepays, and interestingly enough Fed MBS purchase report I think (could be wrong, but it's my wild card pick of the week), should be the most informative though...
Ahead Tomorrow....
- Case Shiller HPI at 9AM
- Fed Fisher at 950AM
- Consumer Confidence at 10AM
- State St. Confidence index also at 10AM (normally not mentioned, but outlying results are sometimes latched onto when data is in demand or the other data of the day is too "middle of the road")
- Fed's Plosser at 7pm
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