On only several occasions has the 4.5 MBS closed any higher than it is right now.  The 4.5 is up 10 ticks on the day at 102-10.  This is actually higher than the period of extreme stability and extremely high prices during the spring where the 4.5 topped out at 102-07.  At this point, we'd have to go back to mid-March for similar prices.  And even though we're looking at apples and oranges to some extent by comparing intraday prices with closing prices, 3pm marks are right around the corner...

We've discussed the fact that tsy's are no where near their all time best levels given comparatively wider spread earlier in the year.  In other words, it's not so much that the RATES market is at all time low yields, but rather, MBS have tightened so much for so long that less heady levels in tsy's still allow for all time highs in MBS. 

All the mid day gains come on the heels of the FOMC statement.  This is a bit of an oddity considering the absence of any material surprises in the minutes.  What then, accounts for the rally?  Opinions will differ on this, but the "sideways" theme we touched on earlier is pertinent as it often goes hand in hand with decreased volatility in preparation for important data and/or events.  On the two day chart below, you'll certainly be able to see MBS moving in a narrow and orderly range before exploding higher with the 5 yr auction and the FOMC.

But beyond simply showing the sideways movement this AM, the chart also does a great deal to answer the question posed above.  In short, current price levels are a simple extension of previous momentum.  A few of the last "big shoes" have dropped for this momentum.  In other words, barriers to the continuance of the momentum have been removed as their respective uncertainties have been resolved.  As we see so often, prices and yields "play it safe" ahead of major data events.

  In this case, after rallying for several days and considering that prices were already near all time highs, "safe" naturally constitutes a pause in the rally to "wait and see."  Waited... Saw... Extended Rally....  For the most part, it's that simple. 

Stocks rallied after the minutes also, but with not nearly the same gusto as bonds...  In fact, the S&P continues to struggle to break even on the day.

Serving to moderate the contact high one might have upon looking at the MBS chart is the intraday action in tsy yields.  If you weren't concerned with MBS, the picture in 10yr yields might be equally informative.  There too, we see a range from 3.36 to 3.325 move sideways throughout the morning, and an extension of yesterday's action beginning after today's FOMC minutes.

But whereas MBS push into all time high territory, tsy yields face the somewhat ominous chore of moving lower past 3.31 and friends.  "Friends" in this context is used to suggest that even if 3.31 itself is not the magic line in the sand, it would likely not take much more of a drop in yields for resistance to pick up.  If this indeed proves to be the case today, the post-FOMC suggestion becomes even more simply understood as a return to the limits of the range.  In other words, rate markets were conservatively prepared with similar concessions to those seen in recent months.  Upon the arrival of "not bad" data and events, the captain of Fixed Income One turns off the fasten hedge-belt sign indicating that yields are free to move about the range.