Posted
The benchmark 10 yr TSY note is in full on facemelting rally mode this morning. ...partially thanks to MBS...partially thanks to a broad based sell off in equities. Currently the UST10YR is +16/32 yielding 3.72% based on bids.
3.72% will be a strong resistance point for the 10 yr note though....look for this yield level to create quite a bit of inertia for the time being (pulling from both directions).
In MBS world there is a clear "down in coupon" bias (accounts favor MBS coupons closer to par) as originator supply has been nonexistant, overseas accounts are actively bidding on "current coupon" MBS (most 5.0s), and real money is adding duration to match "money in" with "money out". The FN 4.5 just crossed over 98-31 to 99-00 (how you like them apples?) while the FN 5.0 "current coupon" is now trading over 101-00 for the first time since June 4....
Here is a two day of FN 5.0...
In the open MG pointed out that gappy spreads were likely to add fuel
to an MBS market rally this AM...well he was right...MBS/TSY spreads have
tightened up considerably since the open. That said...UNFORTUNATELY because yields spreads have tightened there will be added pressure for MBS to sell as the 10 yr note loses steam near 3.72%...if/when this occurs we would expect "rate
sheet influential" MBS coupons to lose positive momentum/go sideways.
On the bright side, unless we see major profit
taking in TSY notes (volume is light this AM), you should get some
reprices for better (or rates will be delayed).
This week the marketplace will focus on Capitol Hill as the Obama Administration is set to announce plans to modernize the financial regulatory system. On top of the political poo slinging, market pariticipants have a healthy dose of economic data to digest this week. READ MORE. We would expect mortgage rates to improve this week as MBS prices move
higher and the yield curve steepens. BUT....we remain defensive due to
supply/demand fundamentals in the Treasury market. On Thursday the
Treasury will
announce an expected $101bn in 2s/5s/7s....just as traders did last
week, we would expect upcoming TSY auctions to force traders to push
the yield curve
steeper and mortgage rates higher as higher yields are necessary to
generate enough demand to soak up excess supply.
2s vs. 10s : 250
S&P: -23 to 923
MBS QUOTES
Cant wait to hear what the talking heads have to say about housing this week. I REPEAT : THE FORECLOSURE MORATORIUM IS OVER!!!!
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