Though MBS were not quite as thinly traded as treasuries (lowest volume since the first trading day of 2010), the picture wasn't much better. At least that which is at risk on low volume days--volatility due to the trading that actually happens comprising a larger portion of the total--was not present. Quite the opposite in fact, as the the same trend that began to emerge early this afternoon remained intact through the close.
In MBS, the 101-07 to 101-10 range covered almost everything since 1030 AM. That's a quiet, boring day. I move a lower trendline down to 3.57 on the 10yr yield to show that we're going out today at an even lower yield level than Friday. So don't let the entire day of slightly worse readings fool you... The net effect for both markets was FLAT.
And in the spirity of our discussion in MBS Afternoon, this is what we'd expect on a data-free Monday before data-free Tuesday (of course not so "data-free" come time for the 3yr auction). In that sense, there is not much guidance to go on, save for the price levels and tradeflows themselves. And if history is any guide, we might expect a bit of a concession to get built into the longer end of the yield curve starting tomorrow. Of course, just when you think you have things figured out, the market will do what it needs to do in order to make as many people "wrong" as possible, but at least we can say that the pre-auction concession seems to be a near certainty for much of 2009 through present day.
Given the current market indigestion of sovereign debt issues and no stock market heroics courtesy of major earnings beats, he may be able to hope for less of a back up than history would suggest. But even so, with a 10yr that stops at 3.56 today--smack dab on that huge, long term internal trendline, you'd have to be exceedingly bearish to fade the conventional concession and push 10yr yields lower than this ahead of a 10yr auction. In plain english, since the convention has been to push 10yr rates up slightly on the day or two leading to the auction itself, and since yields have fallen in line with a huge line in the sand between the 2009 range and everything that has come after it, you'd have to be expecting some serious support for the bond market in order to bet against that which many will be betting on.
Does that mean "lock everything?" Hmmm... Not entirely sure, but certainly ready to act early and often unless you want to take a bigger gamble on 10yr results, stock market recoveries, and unprecedented bernanke testimony.