MBS LUNCH: Reprices Reported. Liquidity Concerns Linger
After
reaching an intraday high of 3.88% , the 10 yr TSY note yield dropped 10bps in
two hours...all the way back to yesterday's 3.78% profit taking point. This
yield resistance range (some say support, we say resistance because we want
yields lower) held strong as intraday gains were consolidated and new positions were set. Immediately following
the consolidation, traders began testing our previously pointed out 3.82% support
level...a test we have passed three times so far.
That said...
If we can
hold below 3.82% for the rest of the day...it means nothing. I really
hate to use the term "neutral bias"...but I am not really sure how
else to describe the current outlook of yield curve traders. Technical indicators are
mixed and fundamentals are varied. Going into next week, range trading will
continue to moderate as market participants weigh FOMC expectations against the
seemingly never ending supply TSY debt.
As far as
MBS go...as we said might occur this AM, once TSYs started rallying the Fed (and
others? not sure yet) stepped in to stabilize the considerable amount of morning
weakness exhibited by "rate sheet influential" MBS coupons. A
rally ensued in prices and yield spreads TIGHTENED. Since 10AM, the FN 5.0 has rallied 14
ticks and several lenders have repriced for the better...pushing mortgage rates a few bps lower.
Although a modest
recovery has been made for mortgages, I cannot stress enough that trading flows
are light and liquidity is likely to continue to progressively "dry up" as the
day progresses (and traders spend more time checking the leaderboard at
Bethpage). This means that REPRICES FOR WORSE are a lingering concern...remember what happened in after hours trading yesterday?
2s vs. 10s: 255bps
MBS QUOTES
Who you got at US OPEN?