After a relatively sidways early afternoon, MBS and tsy's are improved, both at their best levels of the day.
Again, almost all of the directionality today can be chalked up to a dress rehearsal before tomorrow's NFP and inception of a 3 day weekend. Considering we only have 2 days of trading in the new quarter before a holiday weekend, there's also a fair amount of bets being made on how the new quarter will REALLY begin once next week rolls around.
As we've said, prices are now much more reactive to significant data. In the absence of data, they range-trade in technical patterns. Tomorrow wouldn't be one of those "absent" days as many are looking for NFP to either confirm it's ridiculous jump into the 300's, or bounce back a bit into 400's or even higher. Speculation on both sides of the coin is gather a lot of steam in the rumor mill, but the consensus seems to be a bearish surprise (aka over 400k). In all liklihood, the tone set by NFP will dictate rate sheets tomorrow barring an unscheduled party-crasher. I'd feel pretty good if we did hit 400k or more, but history has shown that even when the consensus might be aggressive, even coming close to it is bad news for MBS. That notwithstanding, if the number is somewhere in the middle area of the range, the INTERPRETATION and ANALYSIS that follow have the potential to shift momentum away from the initial reaction.
If you're seeing some reprices for the better this afternoon, and you probably are, take a look at how much was passed on. The closer 5.0 is to PAR, the more you might consider hitting the safety switch on those sensitive deals. We're nearing that sort of "gut feeling" space where we've had a nice stretch of relative positivity and it just "feels" like something might give.
On the other side of the coin, stocks are poised to close under 928 on the S and P, which has been a heady ceiling indeed. If NFP stokes the fires of "Recession Phase 2," it could be right back into the clouds for MBS. Whatever the case, make sure you are thorough in exhibiting the following attribute regarding your pipeline (I'm serious! If for some crazy reason we print a very low NFP, the "recession is over" mentality could take hold and it could be a black Thursday):
For the record, the possibility of such horrible events IS NOT the same as us suggesting they will happen, merely that they could. MBS is waiting for it's next guide...
2s vs 10s: 249bps
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