Things had been pretty tame for MBS and Treasuries after the last round of excitement ended on May 15th.  That was when the last major rally ended and when bond markets began consolidating in a mostly sideways pattern. 

As early as yesterday afternoon, 10yr Treasuries began breaking out of their consolidative range, though the move still faced a bigger test at 2.47.  Yields moved quickly down to 2.47 this morning and paused for consideration before breaking to the the lowest levels since July 3rd 2013.  MBS moved to their best levels since June 19th 2013.

Any time we see surprisingly aggressive moves like this--any time trading levels are pushing the edges of longer-term ranges--it's good to remember that momentum tends to build on itself the more those ranges are broken. 

For instance, if one trader who was betting on higher rates will be forced to cover if rates fall to, say 2.46%, when that trader buys Treasuries to cover their position, it brings yields lower.  Let's say that purchase brought yields to 2.458 and that a another trader is now forced to cover their short position, and the cycle continues until a big chunk of those short positions are flushed out of the market.

We've seen two rounds of that sort of "flushing" so far this morning with the first point of equilibrium being reached around 2.47% and the next at current levels (around 2.44%).  On a long-term basis, 2.47 is the leading edge of an inflection range seen in the following chart.  The next significant level is 2.42, followed by 2.33.  Basically, the rally suggests moving the yardsticks that had been at 2.47 down to 2.42.  If that's broken, we'd move the sticks to 2.33--levels consistent with mortgage rates in the high 3's.

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
99-05 : +0-20
FNMA 3.5
103-07 : +0-17
FNMA 4.0
106-01 : +0-10
2 YR
0.3671 : -0.0229
10 YR
2.4449 : -0.0731
30 YR
3.2991 : -0.0679
Pricing as of 5/28/14 11:57AMEST

Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
10:20AM  :  Rally Getting Progressively More Serious
9:36AM  :  Bond Markets Rallying Hard This Morning; Best Levels Since June 2013

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "lowest 10yr yield since June, highest MBS prices."
Gus Floropoulos  :  "it's funny, because I was asking MG to lock my pipeline prior to the April NFP report on May 2nd, and although he agreed with me that most data available to us at that time indicated a good point to lock in gains, he advised me that there was something brewing in the market and there was a strong chance that the rally would continue. You were spot on MG."
John Sheadel  :  "Did I miss something big or is this just some pent-up energy finding its way out?"
Matthew Graham  :  "nothing big this morning, apart from the rally itself."
Chip Harris  :  "Just was reading the latest update: That's not to say breaking below 2.47 is impossible before next week's important data, just that it would be a tall order. "
Victor Burek  :  "just testing, haven't broken"
Matthew Graham  :  "we'd be looking for yields to hit 3pm levels at or below 2.46 for 2 days in a row"
Matthew Graham  :  "in order to confirm. Even then, there's no hard and fast rule about what constitutes a "confirmed break." Just keep in mind when we're dealing with technical levels as epic as 2.47, they can't be pinned down to one specific level. It's more like you look at several years of charts and use a slightly thicker market to draw your trendlines. The inflection point is the whole range of yields covered by your thick marker line, not just one level. "
Matthew Graham  :  "In the broadest sense, the 2.47 inflection point is actually 2.47-2.42"
Sung Kim  :  "wouldnt that be an inflection range"
Michael Gillani  :  "It'll be interesting to see if secondary desks are more conservative or not on ratesheets this morning."
Matthew Graham  :  "here's what I mean about the "thick marker" thing, in case it was unclear."
William McGuirt  :  "at what point could we see a reprice? "
Jason Harris  :  "depends upon when your rates came out.....the earlier they came out the more likely you are to see a reprice soon"
Victor Burek  :  "at any time we could..especially from the lenders first out with sheets"