MBS Claw Back To Yesterday's Range. Treasuries, Not Quite
The biggest bouts of volatility were seen this morning in terms of MBS and Treasury movement. Each were deposited on the other side of the noon hour near their best levels of the day and set on a course of decreasing volatility and volume. We're fond of repeating the notion on Fridays that markets effectively close at noon due to the overwhelming recurrence of lower volumes and less consequential price action in the PM, but we're understandably wary about thinking about the current week of trading in a "normal" context. But at least for now, bond markets are coasting toward the exit at their best levels of the day.
Here's a longer term look at MBS Prices, showing that we've essentially found support at the exactly midpoint between the highs and lows of the "new era" range (meaning, everything AFTER the early August FOMC Announcement that changed the landscape of rates markets with the "2013 verbiage").
As you saw in the first chart, both MBS and Treasuries are trading in consolidating trends (forming the wedges seen on the chart). These wedges can be continuation or reversal signals depending on how they're broken, but sometimes, they're just an indication of a decreasingly volatile market honing in on it's desired closing levels. It's interesting to note that each wedge has an apex near the 3pm Treasury close. Maybe yields know where they're going and are just on a bumpy road getting there...
Even if MBS stay in their wedge and ultimately don't break yesterday's highs, simply
holding anything remotely close to 102-10 is just fine with us. We've been expecting (and mostly been seeing) vastly increased volatility since breaking out of the long term sideways range. If today's rally stopped right here, it would be the narrowest trading range since Monday. The chart below shows that trading range in the context of several years of 10yr yields. It also shows the most interesting thing about today's levels... Earlier in the session, in extremely high volume, 10yr yields rejected a move through the mid 2.3's, just like they did coming from the other side in late 2010. Talk about pivot points.... They don't get much more epic, and from a technical standpoint, we'd love to see it hold (but remain defensive against the one day breakout 10/27/11 to 2.42.