After a noticeable spike in bond prices following the reverse repo press release this AM, both MBS and TSY's have settled back into an uneventful range-trade.
The first indication that this would be the case was offered by the price/yield levels that capped the brief rally. MBS stalled out right at 100-28 to 100-29, which as you may remember, were the highest closing prices all throughout the summer. Closing below those levels is not necessarily the best indication for MBS from a technical standpoint as it suggests renewed overhead resistance.
Tsy's stopped out just before reaching 3.38 which is also a recent level of technical importance. It marked both the last support level before yields moved through 3.40 as well as the last noticeable point of resistance before yields moved lower in late september. Just as with MBS, this shows RESISTANCE TO IMPROVED PRICES, and from a technical standpoint, is not supportive as it suggests yields are having a tough time getting back below this mark. But there are several caveats.
As you can see in the two day chart, it's not exactly like these levels have been excessively tested in recent days. In fact, it's been over 10 days since they last acted as support against increasing yields. Considering that the only test of either 3.38 in tsy's or 100-28+ in MBS occured this AM, and briefly at that, we wouldn't read too much into the resistance at this point. When this is considered in conjunction with the relative lack of data and volume, there are even fewer reasons to run for the lock button.
We're still very much in the range-trade. It's the familiar scenario of uncertain markets (well uncertain bond markets at least... Stocks always seem to be certain recently) waiting for ENOUGH guidance to nudge them outside the confines of the predictable range-trade. Indeed, that could come this week if we get some sort of unified message concocted from the plethora of Fed speeches. That would likely have to coincide and agree with whatever is suggested by data and earnings. So as always, the range trade is in control until it's not anymore. And we'll probably only know about that shift after we've seen it, or perhaps AS it's occurring at best.
Currently, the 4.5 MBS is unchanged at 100-23 and the 10yr has been inching it's way back to low yields, now flirting with 3.40. This coincides with the apparent stalling-out of the stock rally. After some minor resistance just before 1100 in the S&P, that index now appears to be making an even more pronounced statement with a bounce right at 1099.83. That won't however change the fact that the Dow would need to sell-off over a hundred points to close under 10k. Bottom line: as has been the case so often in recent months, bonds are steady to rangebound as stocks rally. Tomorrow's data and additional Fed-Speak is hoped to make for a more interesting day.
MBS Current Coupon is at 4.3598, making MBS spreads just slightly wider on the day vs. 10yr TSY's at 96bps, but still historically tight and leaving us tighter than the consensus sees us after the effects of the Fed's exit are priced into the market.
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