• Bonds make token gains ahead of Brexit day
  • Brexit poll and Treasury auction helped
  • But trading levels are still well above "the gap" set on Monday

Bond markets began the overnight session repeating a similar pattern from the first two days of the week.  In this pattern US Treasury yields have opened at their best levels of the day and have held steady during Asian market hours.  From there, the weakness has been creeping in during European trading hours with a token recovery during the morning hours in the US.  Finally, the pattern wraps up with bond markets drifting into weaker territory by the end of the day. 

All of the days movement was on track for a repeat performance but the weaker drift during the second half of the day never happened.  Moreover, 10yr yields seem to have found a supportive ceiling right in line with what had been a fairly significant floor for most of 2016 (roughly 1.71%).  A Brexit poll showing an uptick in "leave" votes helped bonds hold their ground in the afternoon, as did a strong 7yr Treasury auction.

All that having been said, in the bigger picture, nothing really happened.  Trading levels came nowhere close to approaching the "gap" created with Monday morning's weaker opening levels.  As we talked about on Monday, this gap is now the most important line of resistance.  Until and unless yields fall through that gap, we're only biding time and waiting for a big enough market mover.  We'll likely have it by the end of the week in the form of the Brexit results.  The only catch there is that it could help yields get down through the gap OR it could extinguish near-term hopes of getting back there at all.

2016-6-22 The Gap

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
102-25 : +0-04
10 YR
1.6850 : -0.0120
Pricing as of 6/22/16 4:03PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
1:22PM  :  "Risk-Off" (Good for Bonds) Following Auction and Brexit Poll
10:23AM  :  Flat Again; Still Waiting For Inspiration

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Dave Pressel  :  "Chase was sticking out so far, for so long, that their pullback is that much more painful"
Dominick Cordone  :  "if you are asking if chase suddenly sucks at pricing, you would be right"
Matthew Graham  :  "This move looks at least as due to Vic's Brexit headline as the post-auction trade"
Gavin Luckman  :  "And we're back in the game"
Matthew Graham  :  "B+"
Victor Burek  :  "TNS Brexit Poll: Leave: 43% Remain 41%"
Matthew Graham  :  "7yr auction outlook. 7's have had a strong tendency to come in at lower-than-expected yields (where "expectation" = the "when-issued" or simply "WI" yield at 1pm). The current WI yield is 1.504, but may change slightly by 1pm. The bid-to-cover averages just over 2.5, but has been as low as 2.25 this year. Indirect bidders take just over 60% on average, but they've taken as low as 53.5% earlier this year. Results at 1:01:30pm, and more info on jargon here: Treasury Auction Jargon, Definition, and Significance "