Unless you're just joining us owing to a late start after a good weekend, you're likely aware of the rally. The "down in coupon" feelings that began last week continued through the close today. MBS and Tsy's both rallied early and after nominal corrections, both remained in a range between that correction and the highs.
In addition to this relatively calm rally, volume was low as well, which is not all that common for quadruple witching weeks (options expirations on Friday). AQ surmised earlier and sounds good to me that the next chapter in the ongoing saga of supply--2's, 5's, and 7's announcement--could have something to do with this. I'd add that Thursday was a major shift in debt markets and some may not yet consider the proverbial knife to have dropped.
Continuing on with building on AQ's previous post, there was something very important about the 5.0 chart he posted--the day over day. Did you catch it? Two words: internal trendline. Long story short, the price that stopped our freefall several weeks ago and that capped our facemelter WAY back in late novemeber as Fed love came to the party has been reached again, and not "just kinda" reached, but exactly reached! Let's make the long story as short as one picture:
The moral of the story is that the rest of the week is going to have pitch some killer relief to win this game. We'd need to break above AND stay above. Despite our generally optimistic view of the week, there's decent little gap between this historic low and the next one which served as a low for the entire first quarter. (yes, I mean "low" not "high" since we are approaching previous floors that we've fallen through. So they're now ceilings).
Watch out for headline risk tomorrow surrounding the Financial Services Subcommittee's hearing on Systemic Risk and Insurance which begins at 10AM. Key data for tomorrow: PPI and Industrial Production with Housing Starts taking a side seat. Even then, I'd actually be more interested in Industrial Production than PPI as bulls and bears alike agree there's not much producers can do to pass inflation on to a consumer without a job...
Optimistic and defensive.... Still...
MBS Market Alerts
