Thursday, with it's 30yr Bond Auction and survey week Jobless Claims numbers, stood a decent chance the break the recent monotony for broader bond markets. "Monotony" is a bit of a deceiving term, because it connotes a lack of importance whereas the the stakes are actually quite high. Rather, the gist of the message was that trading ranges in rates benchmarks had been contained in increasingly narrow ranges. Unfortunately for MBS, those ranges touched on some scary territory and made things more dramatic for rate sheets, but Thursday's mini-rally helped facilitate a modest bounce back in that regard.
While the 11 tick improvement for Fannie 3.0s was a welcome development in the seemingly neverending string of down days, it was more of a relief rally for a sensitive and scared coupon near the edge of sliding down the duration hill. Simply put, just like you see the biggest swings on rate sheets in the most deeply discounted rates (if your sheets have those rates), at a certain point, 3.0s start to succumb to fears that rates won't stay low enough for a healthy stream of business to create turnover in the lowest coupon MBS. If an investor can only profit from monthly cash flow on an MBS (because no one is paying it off by refi'ing into a lower rate), then they're not going to pay as much for it as they run the risk of being stuck with a low-yielding investment as rates move higher.
Bottom line, MBS made Thursday seem like a day that went from good to better. In fact, that was the case if we look at Thursday alone, but Wednesday (and most of the days before), was ugly. MBS have been giving up ground against Treasuries left and right. This is typical behavior, and the bounce back is simply a small correction that recently fearful trend. The underlying movement in broader bond markets remains quite equivocal. Here's the Treasury futures chart we've been following, now on it's third day of being tightly contained between the 21-day moving average and the longer term supportive downtrend. These are PRICES, so the lower the line, the higher the yield.
Friday's data looks like it has less of a chance to break the monotony than Thursday's did. Empire State Manufacturing at 8:30am can have some impact, as can Industrial Production at 9;15am and Consumer Sentiment at 9:55am, but all of these are sort of mid-tier reports, especially in the current environment. Barring significant surprises, markets are likely looking toward next week's FOMC Minutes for any evolution or devolution from the early January curveball. If there's an upside, it's that we're right on the 21 day moving average now, so at least insofar as that particular metric has been a useful guide for the price ceiling in 2013, it wouldn't take much of a rally to break it on Friday.
Live Econ Calendar:
Week Of Mon, Feb 11 2013 - Fri, Feb 15 2013
Mon, Feb 11
No Significant Data Scheduled
Tue, Feb 12
3-Yr Note Auction
Federal budget, $
Wed, Feb 13
10yr Note Auction
Thu, Feb 14
Initial Jobless Claims
Fri, Feb 15
NY Fed manufacturing
* mm: monthly | yy: annual | qq: quarterly | "w/e" in
"period" column indicates a weekly report
* Q1: First Quarter | Adv: Advance Release | Pre: Preliminary
Release | Fin: Final Release
* (n)SA: (non) Seasonally Adjusted
* PMI: "Purchasing Managers Index"
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