Whether it's the fact that almost any trading session would seem anticlimactic after last week's tumult or whether it's a factor of relatively low volume playing out within an 8 tick range, there's not much to write home about today. MBS continue to hover around unchanged levels with the 4.5 at 101-24, a mere tick up on the day. The 10yr tsy yield is between 3.22 and 3.23 which is actactly the same thing that could be said at the open this morning. Volume is noticeably "half-ish" in tsy futures, but that's not all that horrible considering Friday was fairly robust. Since they opened, stocks have steadily levered bond prices down, but whether or not they have the strength to push bonds outside Friday's range remains to be seen.
You can also note the triangle breakout in MBS that occurred on the losses that prompted the MBS ALERT post. Rather than treating the level of the breakout as overhead resistance, prices opted instead to bounce on the ascending triangle line--the lesser of two evils. Either way, we'd be looking to those 101-20 levels as the next phase of support underfoot and likewise the 3.23+ high yields from Friday PM.
To whatever extent we see stocks continue to add on to their gains, we may also see bonds get led up that path of higher yields. Tsy's and MBS are two slightly different animals at this point though as MBS have clearly made two fairly bearish moves towards those lows and recovered whereas tsy's are approaching them in with more of a slow and steady pace. With the various levers--stocks to bonds and bonds to MBS--apparent as they are, incrementally weaker tsy's may serve to sway the decision making process for reprices for the worse. I'd even go so far as to say that if the S&P pushes above 1040 with authority, more than a few lenders will be thinking about a reprice for the worse if they weren't one of the jumpy ones who made that decision on this AM's weakness.
So just be aware now of that possibility and keep an eye on the S&P. If the high degree of correlation in the stock lever fails, we'll update you accordingly. But until then, if you're seeing something higher than 1040 in stocks, reprices for the worse might not be far behind...
MBS Market Alerts
