'Twas the day before December, amidst stormier skies

And Traders pushed MBS beyond all time highs

The 10yr was hung at 3.20 with care

In the hopes yields still lower soon would be there.

Positions were nestled all snug in their range

While cash needs for year-end struck no one as strange.

And Ben at his lecturn and us on our blog

Had just buckled in for the slow Winter slog

When out of the curve, there arose such a steepness

We sprang to our keyboards to explain all this weakness

Away from the highs, prices flew in red flashes

The hull of the float boat lay in smoldering ashes

The mic nestled close to spokesmen for Dubai

Gave pause to the recent testing of highs

When what to bond bullishness should appear?

A not-so-miniature sell-off to close out the year

And a little old driver with whom we'd been messing

We knew in a moment: Year End Window Dressing!

In exactly two weeks of trading, MBS have moved from all time highs on November 30th to 101-08 at close today, the same levels from the beginning of November.  Similarly, the 10yr tsy hasn't been at these yields for over a month, effectively erasing gains in two weeks that had seen yields hit 3.20. 

3.56, our "outer limit" range boundary over the past 4 months, thankfully held up today with trades all but grinding to a half with yields currently at 3.548.  The need among the mega firms to bolster balance sheets with "cash-like" investments continues to favor the short end of the curve, keeping 2's v 10's spreads at "crying-out-in-pain" levels near 275 bps --- all time wides.  The implicit short end of that stick goes to the longer end of the curve and the lower end of the MBS stack which influences rate sheets.

You may not have to endure 12 days of beatings, however, as the trading month UNOFFICIALLY ends next week with the progressively thinning populations at trading desks due to the approaching holiday season.  But next week is not merely one of those "coast across the finish line" sorta deals...  We get 2 day FOMC and the Wednesday announcement.  Putting 2 and 2 and 2 together, if the short end of the curve is highly sensitive to fed policy, and the short end is half the equation of the yield curve, and the yield curve is stretched to the max, and the long end of the curve speaks to mortgages rates.....  <deep breath>  anything pushing short end rates higher might not come hand in hand with enough yield curve flattening for 10's not to move higher as well. 

So bright and early Monday morning, we'll be discussing eventualities both of a welcome correction to today's weakness, as well as even further exploration of today's unpleasant closing levels.  'Tis the season!