The market is grinding sideways in slow trading flows today.

The 10yr TSY note continues to bounce between 3.52 and progress.

The lack of volume is more obvious in the TSY futures market where only 310,000 contracts have traded. That is REALLY REALLY slow.

In the agency MBS market,"rate sheet influential" valuations have tracked the directional movements of their benchmark big brother 10yr TSY coupon. Only 4,000 trades have printed, that is a QUIET MBS market.  The FN 4.0 is currently +0-02 at 98-17 yielding 4.153% and the FN 4.5 is +0-01 at 101-09 yielding 4.344%. The secondary market current coupon is 4.268%. Yield spreads havent budged in either direction.

The sideways nature of price action is apparent as we zoom out to a three day chart.


Plain and Simple: Yawn

This is a normal occurrence ahead of FOMC meetings, especially in December when the majority of market professionals have their "window dressing" funding allocations put into a holding pattern. More or less, year end profit churning strategies have run their course and positions are essentially "squared" (flat) as financial reporting functions begin to occupy busy bodies on Wall Street. In the mean time the focus of active market participants has already started shifting to holiday "honey do" lists and request from the Mrs. to fill babysitter vacancy positions before the holiday party season peaks.  (Let me know if you need one btw, my lady is excellent  babysitter...yes this is a shameless plug, I know :-D)

While this week is indeed the last full trading week of the year (in the minds of most), there is however  business to tend to in the near future, specifically several economic data points and the two day FOMC meeting. Anecdotal observations aside, these events do have the potential to move the marketplace. With that in mind, do not let these tight ranges and thinly traded markets catch the floating portion of your pipeline in a lull. A "lack of liquidity" raises the probability for random chopatile movements, you recall what these knee jerk type reactions have moved price levels in the past right?

Price movements tend to ignore important pivot points and retracement levels. Its a sell now ask questions later attitude. I state these concerns as a reminder that its the perception of the marketplace that matters, the sell now ask question later bias is one the moment there are little to no "buy now ask questions later" feelings in the rates market. Q1 looks to be titled to the bearish side for interest remain cautious of all events, especially in these extremely quiet trading conditions.

If you did not read MBS OPEN. I provided a deeper explanation for the logic behind that outlook.You should notice that we are not feeling so confident about the direction the long end of the yield curve and mortgage rates appear to be headed.

The S&P, NASDAQ, and DOW are all less than 1.00% higher, the S&P is testing the 1113 pivot that I called attention to this morning. The dollar is modestly weaker, down 0.25% to 76.378.

No specific risks of reprices besides one big block trade in the rates market...that's really all it would take to see 10s move back up to 3.56% and "rate sheet influential" MBS coupon prices plummet. I think I have made my concerns and bias clear in this post and in MBS OPEN. If you have any questions please pose them. Now is your chance to hear me tell it Plain and Simple.