Its been another choppy morning in the rates market.
The FN 4.0 is trading -0-10 at 98-12 yielding 4.1681% and the FN 4.5 is -0-07 at 100-30 yielding 4.387%. The secondary market current coupon is 4.299%.
In the primary mortgage market, even though a few lenders who priced early in the session have repriced for the better, rate sheet rebates are still worse than yesterday. If prices fall back to the intraday lows, the lenders who repriced rate sheets may take back the gains they offered in republished rate sheets. As for lenders who have not repriced today, or priced later in the day...a move back to the intraday low may warrant a rate sheet recall. The FN 4.5 would have to fall back towards 100-20 for this to happen, which would require the 10yr TSY yield to retest the 3.42% yield level.
Here is a FN 4.5 two day, notice it is still two ticks above yesterday's opening bid price.
Although I believe I made it quite obvious that the summer range was back in the Treasury market, I dont think I adequately illustrated/reminded you of the yield levels moderating the range. The chart below should help.
The 10yr TSY yield has not broken 3.50% support since it fell below that yield level in mid-August. Between then and now, the majority of time was spent bouncing back and forth between 3.30 and 3.50. More recently, the range has held between 3.30 and 3.41. 3.34 is the 21 day moving average and 3.38 is the 40 day moving average. The chart below is retracements. 3.41% is the 38% retracement of August yield highs.
Looking closer at intraday themes...much of the morning trade has been a function of positioning by fast money day traders. Below is a chart of the December 10yr TSY contract.
Prices fell overnight into this morning after BETTER THAN EXPECTED earnings from INTEL and JP MORGAN. Then new positions were taken around 118-09/118-12. Prices continued to fall into 830 data. When Retail Sales hit wires, prices bounced (yields fell) as short positions were covered. Then momentum built up as bargain buyers opened new positions near the lows of the day (this is called a "fade", or going against the expected reaction and is a function of bargain buying/range trading). Prices ticked higher, eventually crossing over 118-12 (3.38-ish in 10yr TSY cash market yield) selling picked up and prices returned back to the 118-12 pivot point where positions were set earlier this morning.
118-12 = 3.38 in cash market 10yr TSY yields.
Plain and Simple: 3.38 is important yield level today. Its a pivot point
The DOW has stalled out before reaching 10,000. It appears that the market is willing to accept higher equity valuations, but they need further confirmation before taking price levels higher. This makes the release of FOMC meeting minutes a bit more important for us.
"Better than expected" economic/earnings perceptions force us to remind you that 3.50% is not far from where we are trading right now. That said, if stocks continue to rally, mortgage rates may get worse before they get better again. The range is still moderating markets though...until a breakout over 3.50 or under 3.27, we will continue to base our decisions on where volume accumulates and where it is distributed, on retracements, moving averages, and momentum.
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