AT A GLANCE

  • No Further Data Left Today
  • No Further Trading Days Left This Month (traditional month end lift for bonds)
  • Stocks Unable To Break Previous Highs
  • Ongoing Lack Of Super-Bullish Data
  • MBS and Tsy's Both Taking The Opportunity To Test Resistance
  • 4.5's are up 11 ticks at 101-10
  • 10yr Tsy is up 9 ticks at 3.60 yield.
  • Profit taking expected, Tsy's not seen making significant headway down into the 3.5's

 

MBS Prices and Tsy yields are experiencing a sort of best-case-scenario day where an uncommonly econ-data-dense Friday failed to hit the long ball for equities.  Combine that with the month-end bond buying and even give a nod toward Fannie/Freddie 120+ delinquency buyouts for putting the fear of the MBS gods in all holders of premium coupons, and all the stars have aligned for a test of mid month highs.

Notice the little bout with technical resistance around 101-04 just before noon.  But once that broke, shooting higher went mostly unchallenged.  It's nice for now, but don't expect some sort of unchecked continuation.  The big bumps in that highway are MBS's relationship with the yield curve as well as where prices are versus previous highs.  As far as those previous highs, take a look:

Looks great, but this is a WEAK test!  Why?

It comes on a Friday well after the data has been traded.  -1

It comes after 12 noon when many varsity players are done for the weekend.  -1

It therefor comes with far less volume we'd look for in a successful test -1

We know we are pretty close to "as tight as we get" to tsy's which also have technical barriers to get through -1

Fed MBS Exit?  Probable....   -1

MG and AQ said so - 247

so that's 252 points against the strength of the breakout (adjusted for margin of error and it's more like -5, but even the "-1's" are merely rhetorical in the first place).  The fact was, is, and will be that the 10yr has, does, and will continue to have a very tough time making any headway into the 3.5's.  Basically, a major shift in sentiment or the climate of econ data would have to take place in order to get back to those 2009 ranges.  And with MBS spreads tightened to the max, and back up in tsy's is therefore, necessarily a back up for MBS yields. 

In other words, enjoy it while it lasts and be ready for the pull back some time shortly.  When that happens, don't worry too much about reprices for the worse unless we were to crash through 101-04 with a purpose.  On the tsy side, being under 3.62 is probably all you'll need to know to feel confident in rates for the rest of the day.  But of course, we'll let you know if that changes.