The FN 4.0 is trading -0-12 at 97-25 yielding 4.228 while the FN 4.5 is -0-09 at 100-19 yielding 4.429%.The secondary market current coupon is 4.349% (60/40 weight in favor of 4.5s?). Rate sheet rebate has been reduced again.
It has been another choppy morning....
Its really all about the RANGE TRADE still. Below is a chart of the December 10yr futures contract. Higher prices means lower yields, lower prices equals higher yields. Lets break down the strategy...
1. Early this morning volume picked up around 118-00 (3.44ish). Just as we pointed out yesterday, this is our daily pivot point, the simplest way to describe a pivot point is a level where the market changes direction.
2. Then prices and volume went sideways for a while until NY booted up GLOBEX (electronic futures trading).
3. Follow the sideways action prices began to tick higher in thin trading conditions. The TY (10yr contract) began to lose steam as prices touched a key technical resistance level.
4. Then when 830 data hit wires, volume spiked and the 10yr contract made a new low print on the day (print = trade that occurred and was sent to data feed).
5. Prices and volume then went sideways for the next 30 minutes.
6. However prices started to slowly move higher off the lows of the day (which happens to be a technical price level, when you are range trading always prepare for a bounce at technical price levels)
7. As prices progressed off the low print of the day, volume began to accumulate which I illustrated via the upward sloping green line overlaid on volume.
8. When prices hit 118-00, our intraday pivot point, volume increased and prices shot back to the intraday highs,which happens to be a key technical price level (see importance above).
9. Once this already tested and failed technical resistance level failed again, volume spiked again as traders liquidated their positions (profit taking) and guess where prices have settled...AT OUR PIVOT POINT!!!!
Many lenders priced when prices were at the bottom of the range this morning. That said reprices for the worse are not likely unless the FN 4.5 makes a meaningful breakout under 100-16.
MBS Market Alerts
