Ok, so the "MBS MORNING" may be a bit misleading considering the PM publish time for east-coasters, but it brings up a good opportunity to discuss a quick and important factoid about our commentary. In general, it's almost always safe to assume that we'll get you BAD news ASAP as that would prompt lock decisions. Conversely, if you haven't heard from us by the usual times, it's generally safe to assume little to no reprice risk or even positivity.
In other words, just like my favorite definition of MBS which states "the security has the mortgage's back," we got your back if nasty stuff is going down, and otherwise reserve the right to vary the time frame of posts. Hopefully we're all cool on that, but send us any feedback or discuss in the comments section. As far as how the above assertions are playing out today, we are indeed near the highs.
The 4.5 is up 8 ticks at 100-29 (what's the word for 101nertia?). Buying is clearly favoring "down in coupon" as the 4.0 is up 9 ticks versus the 6.0 at just 2 ticks better. As is the norm in a rally...MBS are being outperformed by big brother benchmarks... The 10yr is up 12 ticks, dropping the yield to a range stretching 3.65. Both marks are the best of the year. MBS SECONDARY MARKET CURRENT COUPON: 4.391%. Yield Spreads: +74.5/10 yr TSY, +64/10yr swap, still quite tight. The yield curve itself is much flatter on the day with 10's down 4.7bps in yield vs. 2's at only 1.6bps improved. That drops the curve to 278.6 bps with no further significant data on the day.
notice the lows in MBS at 10AM. I didn't overlay the horizontal line there to save time in getting this overdue post out, but hopefully you can draw said line in your mind's eye and see it attaching perfectly to yesterday morning's HIGHS. This is a classic example of inflection and/or pivot point. Technically speaking, we talk time to time about "one man's floor being another man's ceiling." The suggestion is that if a price level was "tested" and proved resistant to breakthrough, that once that level was finally broken, it's more likely to have ongoing technical significance and resistance to breakthrough coming from the other direction, aka "SUPPORT."
(one thing to remember that may create confusion is that "resistance" lies ABOVE MBS prices whereas it lies BELOW tsy yields. So because we express tsy's in YIELD (it's more accurate), don't be confused when you see us talking about "yields rising and testing SUPPORT" or "yields dropping, but meeting RESISTANCE." Just think about support as the floor and resistance as the ceiling IN TERMS OF PRICE PRICE PRICE! And so if you're looking at a yield chart, it's opposite day.
As we discussed this AM, the positivity came overnight and continued until data releases. The data provided a bit of RESISTANCE to ongoing improvements, but the correction was not severe enough to violate SUPPORT from the technical levels created by yesterday's strongest levels (inflection/pivot). You guys readin' me loud and clear? Don't be shy about letting us know if you're not. Please. We're here for you.
With little data left today, we're rapidly approaching decision time for overnight floating. Keep an eye on reprices for the better or simply strong rate sheets right out of the gate so you're in the fastest position to assess the risks of the overnight float going into tomorrow's heavier data calendar and the theoretically important auction announcements.