Yesterday was nice while it lasted.  Against a sea of redness, it stood out like a beautiful green shoreline.  Unfortunately, that shoreline turned out to belong to an island and that island was quickly swallowed up by the angry red sea.  OK, so it wasn't quite that dramatic, but close!

The weakness began right at the start of the overnight session as the yield curve (and 10yr yields for that matter) bounced at technical resistance.  We were worried about this after yields failed to break below 2.615% yesterday but not reading too much into it at the time.  After all, we didn't want to press our luck with several bps of gains already on the board. It only made sense that bonds would take their time if they were trying to mount a buying offensive.

2.615 was the first bounce seen in the overnight session and it coincided with a similar bounce in the 2's vs 10's curve (.559% to be specific).  Both the curve and 10yr yields moved higher from there, pulled primarily by European bond markets.  Bond traders are generally defensive ahead of tomorrow's European Central Bank (ECB) announcement on the chance that ECB President Draghi throws his hat into the ring of policy tightening with the Fed.  That creates opportunity and risk. 

If Draghi is dovish (analysts see little justification for this), bonds could use another technical level--but this time, a positive one--as base camp for another rally attempt.  The level in question is nearby at 2.66+, so it's quite risky to float and hope it holds.  The default assumption is that a weaker trend is in effect and that it would take more than one or two days of solid gains for that to change.


MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 3.5
101-12 : -0-05
Treasuries
10 YR
2.6502 : +0.0282
Pricing as of 1/24/18 4:27PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
1:35PM  :  At Best Levels After 5yr Auction
10:55AM  :  ALERT ISSUED: MBS Already an Eighth of a Point Off Highs
8:40AM  :  ALERT ISSUED: Sharply Weaker Overnight And Losing More Ground Now

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Brent Borcherding  :  "The Amazon effect."
Ted Rood  :  "Looks like my plan to buy an affordable second home in Seattle is on hold: https://www.seattletimes.com/business/real-estate/million-dollar-home-sales-surge-in-king-county-creeping-into-cheaper-neighborhoods/"
Matthew Graham  :  "uneventful"
Matthew Graham  :  "B"
Matthew Graham  :  "RTRS - PRIMARY DEALERS TAKE 25.95 PCT OF U.S. 5-YEAR NOTES SALE, DIRECT 9.07 PCT AND INDIRECT 64.98 PCT"
Matthew Graham  :  "RTRS - U.S. 5-YEAR NOTES BID-TO-COVER RATIO 2.48, NON-COMP BIDS $48.76 MLN"
Matthew Graham  :  "RTRS - U.S. SELLS $34 BLN 5-YEAR NOTES AT HIGH YIELD 2.434 PCT, AWARDS 53.03 PCT OF BIDS AT HIGH"
Matthew Graham  :  "Current yield expectation (when-issued) is trading near 2.45%. Average bid-to-cover has been just under 2.5x, but the past 3 have all been under 2.46x. Indirect bidding has averaged 65-66%. The high yield, on average, has come in right in line with the expectation, although the last auction was 1.5bps higher"
Matthew Graham  :  "For the following auction preview, here's the decoder ring: Treasury Auction Jargon, Definition, and Significance "