Good Morning. Nothing gets you going on a cold winter morning like getting your butt whipped at racquetball by your dad.

Benchmark interest rates and "rate sheet influential" MBS coupons tested the outer limits of their month long range yesterday. Ignoring a  US$ rally and a failed equity rebound, 10yr note yields ticked over 3.68% support and tested the more significant 3.71% pivot point.

The FN 4.0 ended the day -0-07 at 97-26 yielding 4.209% and the FN 4.5 went out the door -0-07 at 100-26 yielding 4.422%. The secondary market current coupon was 4.390%. The current coupon yield outperformed benchmarks yesterday: +68.3/10yr TSY yield and +57.6/10yr swap rate

As MG pointed out in MBS CLOSE, 3.71% is the ALL IMPORTANT inflection point in 10s. The chart below is very similar to his, I would like to point out a few more observations though. 

In the last half of 2009, ignoring a few outliers events that pushed rates to extremes, 10s held between 3.27 and 3.51 with much time spent bouncing around between 3.32 and 3.41. We described the price action as CHOPPY, aka random movements about a defined range.

3.57 - 3.85 is the new range.  Why is 3.71% so important? Two reasons...

  1. It is directly in the middle of the range.
  2. The move above 3.71% in late December was in low year-end trading volume and has yet to be confirmed by the market.

The point Matt made last night called attention to something we have seen occur consistently ahead of major economic releases and market events like Fed meetings. Leading up to these crossroads affairs, trader strategies have been unwound and positions have been squared. After funds are moved to the sidelines and the dust has settled, prices and yields have somehow found a way to migrate back towards STATUS QUO levels near the center of the range. This is nothing new. We are seeing it again ahead of NFP tomorrow. Whether or not the range is actually topped out at 3.71% or 3.85% is yet to be seen.

Well done MG. Well done.


The scoreboard is GREEN for both benchmark 10s and "rate sheet influential" 10s.

Rebate is noticeably improved on the rate sheets that have already been posted.

Jobless Claims were expected to be in the 460,000 area....actual initial claims were 480,000. This is 8,000 higher than last week and the labor department made it clear that there were not statistical factors distorting claims this time. Emergency benefits rose 281,000, thats a big increase. Continued claims moved up by 62,700.

All three metrics were received well by the bond market this morning.

Hmmmm...this adds a sour twist to the outlook for tomorrow's NFP print.  The reaction in stock markets reflects that....