(MBS Live) - 1:51 PM - For all the apparent drama on the short term charts, today's sell-off in bond markets is rather orderly in broader contexts. Traders have grown increasingly accustomed to finding opportunities in market movement that is historically narrow. In other words, 2.10 to 1.90 is wide-enough range for buyers near the highs and sellers near the lows.
In that sense, we might reasonably expect that Bernanke would have to have been unexpectedly dovish today in order to get 10yr yields to break lower than 1.90. As he did not, in fact, make any mention of QE3 at all, markets logically went right back from whence they came. 10yr yields returned to the mid-point of their recent range with eerie proficiency and have been grinding sideways there, almost as if it was scripted.
It's a similar story for MBS. Fannie 3.5's sought out a highly traveled pivot point in 103-10, which provided resistance in January (ceiling) and support in February (floor). Prices are currently 7 ticks lower on the day at 103-12, but indeed have seen a majority of their supportive bouncing take place at 103-10. That makes a moderate break lower from there seem like an excellent short term lock suggestion.
We're careful to point out "short term" here as the longer term trends are still very much converging/consolidating, both in MBS and Treasuries. Each market has long term bullish trends colliding with shorter term bearish trends. There's really no question of the convergence, but the direction of the break and concomitant magnitude of the move are, as yet, undetermined.
Long story short, 103-10 is looking supportive for now, although lenders continue repricing for the worse. This could be one of those afternoons where we see the "early-to-act" lenders come back with a positive reprice if the bounce continues to materialize.
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