Posted
Phew. I took a risk this morning and decided NOT to issue an ALERT when benchmark yields starting rising at 10:30.
In a choppy marketplace, when price action is randomly bouncing between pivot points...you have to constantly remind yourself to PLAY THE RANGE UNTIL THE RANGE PLAYS YOU. Although this strategy was put to the test several times this week...its still working out well for us. Of course the 'UNTIL THE RANGE PLAYS YOU' portion of that strategy could end costing you a few loans, that's why you GUTFLOP. It would be a lot easier to float through potential range breakdowns if you had more hedging options, but you dont, which leads me right back to GUTFLOP. :-D
Anyway here is the brief blip the 10yr experienced this morning. This pivot point happens to be the level that trader's pushed rates to after yesterday's 830AM data. TEST # 1...PASSED.
Of course, as our benchmark big brothers always provide directional guidance, when the 10yr note yield rose, rate sheet influential MBS prices fell. (Remember as bond prices fall yields rise...except when you buy a discount MBS coupon, you'd love to get called on that coupon).
The FN 4.0 is currently +0-08 at 98-14 yielding 4.162%. The FN 4.5 is trading +0-07 at 101 'ROCK', 101 'THE FIGURE', 101 'THE DOLLAR', 101 'ALL LEVEL NO HANDLE'...aka 101-00 yielding 4.379%.The secondary market current coupon is 4.303%.
The Current Coupon is +87/10yr TSYs and +70/10yr swap.The FN 4.5 is+94/10yr TSY and +78/10yr swap. WIDER FROM YESTERDAY...Treasuries are outperforming MBS today. Given the usual month end supportive events on the horizon (starting today with index extensions)...yield spreads shouldn't leak out too much farther.
Yesterday I told you that I expected to see some profit taking from stock traders which would help rates remain within the range. Well, stocks didnt retrace yesterday afternoon, gains actually held into the close. So I probably looked like a dummy to you guys. BUT...my outlook did play out this morning. HAHA redemption!
Check it out. Stocks giving yesterday's gains back...
If that "STATUS QUO' line is broken...TSYs and MBS should see more of that corrective rally I was expecting yesterday afternoon. Sorry on the bad timing!
Foreign central bankers are active in the Treasury market this morning...could be a function of news that the Swiss National Bank was planning on intervening in the currency market to keep the Franc weak. The news by itself caused the Franc to sell off against the dollar...consider the added TSY bid 'speculative' in nature. The rally in the rates market is more a function of weakness in stocks though...