• 4.5's ended unchanged at 101-02 after being as high as 101-07
• 10yr treasury down 7 ticks in price, pushing yield from 3.66 to 3.687
• Dow gains over 100 to 10,888, over half the gains follow Yellen's Yellin'
• Durable Goods and New Home Sales early tomorrow, Fed's Hoenig at 10:45, and headliner of the day, 5yr note auction at 1pm
• Still slow, still sideways, still uninspired, still uncertain

When the movie "There's Something About Mary" came out, I'd been expecting a more dynamic twist to her character.  Of course I was sorely disappointed, but the title always stuck with me as a good way to reference something that  is "more than what it seems."  And so it is with 101-02 this week.

In much the same way that 100-28 (really 100-27 to 100-29) has perennially been a high traffic area for current coupons, 101-02 has been the clear favorite pivot point for 4.5's so far this week.  What's a pivot point?  Start by thinking of a line graph of a stock or a bond.  That line will always have a slope (unless it's completely flat, in which case = zero slope).  If the line is moving UP from left to right, that's positive slope, and moving DOWN from left to right, negative slope.  If all movements are generally PARABOLIC (meaning all these messes of financial charts can be reduced to a bunch of "U" shapes and "n" shapes), then there is a point on each parabola where the slope changes from positive to negative, aka "the vertex."  You're welcome to think of this as the "highest" part of an "n" shaped line or the lowest part of a "U" shaped line.

As long as you're still coherent after that paragraph, pivot points are easy to grasp from here.  They are simply points that coincide with the vertexes of BOTH concave and convex parabola.  Or in simpler terms, if the peaks of a bunch of those little "n" shapes and the valleys of a bunch of those little "U" shapes (at least one of each please!) occur on the same line, you have a pivot point.  The more it happens, the stronger the case is to refer to that price as a pivot point.

So yesterday, we had "a bunch of n-shapes" turning around (aka, their highest points, aka, they stopped going higher and started going lower) at 101-02.  Yesterday, 101-02 was RESISTANCE in and of itself.  But today we have "a bunch of U-shapes" also turning around (aka, their LOWEST points, aka, they stopped going lower and started going higher) at the same level.  To wit:

101-02 is a pivot point.  I know I know I know, not ALL of the parabola have vertexes on the red line, and some even cross over a bit, but more than any other point on the chart, 101-02 is turning away rallies and supporting sell-offs over the past two days.  The final ingredient in becoming a full fledged pivot point is that someone has to decide to call it that.  In this case, ME!  But seriously, if you can't see that yesterday was largely capped by 101-02 and that today was largely supported by it, then trying to understand a pivot point would just be slapping a word on something that doesn't hold much meaning for you anyway.

After all, simply calling that red line a pivot point doesn't do us any good.  But understanding that it's had a historical predisposition to act in a certain way, and that it is more likely to act that way in the future than it is to move at random, AND that  if it stops acting that way, we are more likely looking at a CHANGE IN TREND rather than a continuation of the same trend, can certainly help us make our own decisions as to the risks involved in floating or locking.  If you're not nodding your head, that previous sentence is a good one to read again.  It tells you WHY we even care about pivot points in the first place.  And just in case you're not going to go back and read it, here are two bullet points that will tell you why we care again:

• Prices are more likely to move in similar patterns to their past movement than they are to move at random
• If Prices that had been adhering to historical patterns STOP adhering to them, it's more likely that something about the trend that saw those prices "always wanting to bounce" around 101-02 is changing than not-changing.

Keep in mind that we're not quick to say trends or ranges are indeed changing unless there are underlying fundamental changes to support that or technical details such as volume or adherence to another technical pattern that suggests the change.

Boy howdy, I hope that makes some kind of sense, but the great thing about the MBS commentary is that if it DOESN'T MAKE SENSE, YOU CAN LET US KNOW AND WE'LL KEEP TALKING ABOUT IT UNTIL IT DOES!

The moral of today's story is that MBS were wanting to stay under 101-02 yesterday and over it today.  Whether prices open higher or lower tomorrow, we'll continue to look to 101-02 as a potential level of resistance or support until it proves insignificant.  With 2 days of the week down, so far it's significant.