This is the third Friday in a row where we've looked back on what we would have thought would be a much more active week.  We've been operating on a series of "if/then" dominoes as far as market momentum is concerned.  If things lacked conviction after the post-NFP correction earlier in the month, then we were waiting for the FOMC-related events this week.  If FOMC didn't motivate movement, then we'd look toward economic data in the form of today's GDP.  And if GDP didn't stir the pot much, then next week's NFP is really all we have left.  The fact that it's part of a "month-end" week that also contains a fair amount of other relatively important economic data SHOULD (and we feel like we have to emphasize that word now) give us some cues as to the next move.  Either way, MBS trading flat near all time highs is fine by us.

MBS Pricing Snapshot

If bond markets do something other than drift sideways in light volume from here on out, it would probably be pure coincidence. Current trading reiterates that 'decisions' will be put off as long as possible. Specifically, it would be nice to see 10yr benchmarks make a decision on 1.96 vs 1.94 following FOMC or for MBS to make a decision between 101-19 and 103-23, but there's a distinct possibility emerging that no such decisions will be made until next week.

If you note some underlying frustration here, it's merely due to the lack of guidance/clues. We're not really upset at all about production MBS holding a flat range within half a point of their all-time highs. Also, we're looking for something to say... Really... There's not much going on today.

To quantify the slowness that often shows up on Friday afternoons, we'll use one of our most reliable volume proxies: 10yr Treasury Futures contracts. In the minutes following this morning's GDP release, there were more than 45k contracts traded. There were several other 5-minute blocks with 15-20k contracts in the following 2 hours. The past few 5-minute blocks have been a mere 2-3k by comparison. The last decent chunks of volume coincided with 10yr yields bouncing at 1.94 and 1.955, and we'd need to see a huge pick-up in volume to consider anything else as "the range" for the rest of the day.

That range seems to coincide with 103-19 to 103-23 in Fannie 3.5 MBS, though MBS can suffer (or prosper) to varying degrees based on the will of whoever remains to trade the less liquid PM hours on Fridays. We wouldn't rule out a slight bit of exploration into higher prices given the stable environment and recently wider spreads (wider spreads = more attractive relative value vs other fixed income investments = can create buying opportunities for some). This, admittedly, is a stretch. We'll pretty much just take what we're given and like it, trusting, hoping, praying that we'll get some clearer signals in the week ahead.