MBS Screens Stay Green. Defensive Posture Assumed
Somebody call Spiderman! You know that thing he does when people are falling out of buildings and what not? With the wrists and the web shooting and the saving and the hey hey? Yeah, we're gonna need that. Well, at least anyone with floaters who was hoping for gains today who subsequently lept from such buildings as the 10 yr skyrocketed toward 3.0 presaging another potentially ugly day in MBS-Land. But truth is stranger than fiction, or perhaps not so strange at all...
Here's an up-to-the-minute look at MBS 4.0's, followed by a chart of the 10yr yield and the S&P. As you can see, disaster averted:
You may hear folks discussing "fed buying" that coincided with prices turning around (roughly). Indeed it did, but the fed buying was in the short end of the curve whereas the gains have been in the belly (5's and 7's leading the pack). AQ and I arrived at similar conclusions independently, surmising the back up and subsequent rally smell more like a money-shuffle. Weak data helped yields trade down with more emotion than usual, aka the good 'ol knee-jerk. That opened the door for accounts who may not have been feeling so good about recently taken positions in light of the aggressive tug-o-war around 3.0% to make some adjustments and/or fast money accounts to take profits on whatever fast money positions they held.
Plain and Simple: The market is still very tactical.
That's my HOPE anyway... That this morning's scare merely constitutes a more directional than normal consolidation/distribution/repositioning and that 3.00 is a new base to build on. Far far too soon to predict such things (and who wants to "predict" anyway? What if you're wrong?!), but I do know that historically, bonds tend to make gains in months where NFP was poorly received. Then again, the turn around could be a simple function of the yields at which it occurred, regardless of time of day or paper-shuffling. More than likely, it's a combination of both, but in the interest of representing the technicals as well as fundamentals, do the following few ticks in 10yr yields seem to be a bit coincidental?
Today could still play out in several different ways, so please count no chickens. For now, the 14 tick gain that leaves 4.0 fannies at 100-28 is a "win." And for the broader bond market, so too would be making it to 3pm with a sub 3% ten year note. We'll update you with any pertinent developments in that game.
Plain and Simple: We are still very defensive of bearish momentum and its willingness to test 3.07/08% in 10s.