Posted
Some housekeeping before we get started... Who attended the HVCC/CFPA webinar? Take some time to use the comments section of this commentary to share your thoughts and impressions for discussion. Lots of buzz on FTHB tax credit, and it's potential morph into the "Any homebuyer tax credit" (as long as you've had the house your moving out of for 5 years, or some crazy thing like that...). but it looks to be north of 7 grand a year... More than enough to get a few folks off the fence, and scare holders of premium MBS into the lower stack... Thoughts on that too! Bring EM!
Two Auctions Down, One To Go...
After all the build up to this week's tsy supply, MBS are throwing a no hitter as we pause for the 7th inning stretch. Yesterday's strength extended into the AM session with the help of data and a supportive cast of characters like stock sell-off, a flattening curve, and even the perception of causality between the impending First Time Homebuyer Tax Credit and prepayment speeds. The 4.5 coupon came to rest on 101-05, capping--for all intents and purposes--our 2nd consecutive half point gain...
As we've been discussing today, various ranges have been important to this uptrend. And in the absence of morning negativity or a disappointing auction (not nearly as good as yesterday, but decent), it was almost as if the market behaved as we expected... Stop the presses! Predictability?
When prices started to get a little too aggressive to stay within the upper limits of the range, we suggested this AM that these levels would be prime targets for corrections back in line with the range. So it was written, so shall it be done... Not only that, but the bottom of the range proved to be even more firmly supportive. To be clear, however, it's not like this is a heartfelt pat on our own back, or groundbreaking analysis against the recent backdrop of heavily technical trading patterns that have come to define the market's current uncertainty.
Interesting happening's in the treasury portion of the chart! Far from the straight line one could draw through the middle of most of the MBS price action today, a similar effort in Tsy's would see that line leveling off, and going almost horizontal by day's end. It's not readily apparent in our previous charts and might further elude detection thanks to the optically elusive suggestion made by the straight trendlines on the outside of the range.
So at times like this, we whip out the TEAL pen for a horizontal line to show you what we mean... Check out how the 10AM drops in yield land not only on the already discussed range boundary, but also on the technically charged 3.42. morevover, it's only for about 10 minutes that yields ever move higher. Of course we wouldn't expect them to go higher and STAY higher if yields are trending down, but we would expect a little more "back and forth" inside the RED lines as opposed to the majority of the back and forth occurring between the TEAL and LOWER RED lines...
The teal line provides ample resistance to yields moving lower in the morning (think yellow line bouncing on the teal line), and immediately ample support thereafter (think yellow line hitting its head on teal ceiling). All this is merely clues us in to the fact that 3.42 is a player in the technical price level game, and traders are aware of it (or rather their algorithms are...).
So whether it's the seemingly mechanical effects of tradebot 3000 (which, although much more prevalent, still doesn't account for as much execution as you might expect), or conscious trading of technical levels, we simply put another notch on the wall next to 3.42 to mark another day of technical significance. It might not be in the same league as 3.38 yet, but let's keep an eye on it tomorrow.
With that in mind, don't be entirely surprised if you don't wake up to a facemelter before data even comes out in the morning... Given that we are now very close to the center of the recent long term range trade, this appearance of "leveling off" could indicate more than some fascination with 3.42. After two days of gains, this could be the position from which the markets are prepared to make their next movement.
But thankfully for us, the fact that morning data arrives before the auction, the vaccuum of news and data necessary for tsy's to flatline at 3.42 until the auction is a fantasy which won't need to be put to the test. Here's what's on the table
TOMORROW'S DATA CALENDAR:
- 830am - GDP and JOBLESS CLAIMS
- 930 - Geithner Speaks
- 1pm - 7yr auction
- 430 - fed balance sheet and money supply
- 840pm - Timmy speaks AGAIN
A little tidbit on GDP you may have come across already. In their usual fashion, GS is out with another last minute adjustment to their forecast of a big time indicator. Last two times it's been NFP, but now they've downgraded their estimates of GDP. Hopefully they're able to go 3 for 3 on last minute adjustments on the same day we go 3 for 3 on decent or better treasury auctions.... That would make for quite a day (maybe... Jobless claims would likely need to capitulate to some extent).
BUT, BE AWARE... There's an outside chance that if economically bearish stars align, we could see some massive selling in stocks tomorrow--as in the most selling we've seen in a long time. Any bullish data among the morning pair likely kills the chances of that happening, but if GDP were to tank, claims were to spike higher, and the bond auction was well-bid, I'm gonna go out on a limb and say the stock market has to connected to fundamentals at least enough for some losses.
But the catch is that "some losses" basically throw the S&P off a cliff of technical support with no bottom in sight... If anyone sees it, give it a push for me! Oh yes, there's a certain amount of morbidity that goes into hoping for improved rate sheets...
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