Halfway through the morning session MBS flows are much as they were most of last week (and the week before)...slow and sluggish, but then again this has become the norm so we believe it's safe to say that things are "on par" (haha) at the moment. The recurring feeling of Fed afforded support has allowed MBS market participants to guard recent gains while yield curve buyers price in another possible run up in rates (ahead of Thursday TSY announcement detailing auction schedule for an expected $100bn+ more 2s/5s/7s) .... 4.0s are holding last week's gains above par and 4.5s are still hovering near 102-00...
Since 5pm "Going Out" Marks....
FN30________________________________
FN 4.0 -------->>>> -0-01 to 100-03 from 100-04
FN 4.5 -------->>>> -0-01 to 101-28 from 101-29
FN 5.0 -------->>>> -0-01 to 102-27 from 102-28
FN 5.5 -------->>>> -0-03 to 103-18 from 103-21
FN 6.0 -------->>>> -0-01 to 104-23 from 104-24
GN30________________________________
GN 4.0 -------->>>> -0-02 to 100-01 from 100-04
GN 4.5 -------->>>> -0-02 to 101-31 from 102-01
GN 5.0 -------->>>> -0-03 to 103-20 from 103-23
GN 5.5 -------->>>> -0-01 to 104-02 from 104-01
GN 6.0 -------->>>> -0-01 to 104-19 from 104-20
The morning range is narrowing...selling pressure on TSYs (supply induced) may push the FN 4.0 to breakout on the downside. BEWARE...
The artificial market making powers of the Federal Reserve are also being exerted on the Treasury market. This morning the Fed's "Open Market Operations" account purchased $3.18bn of Treasury notes maturing between 8/2019 and 2/2026. Here is the breakdown....
This added demand side support has provided an intermittent crutch for fixed income investors to lean on while the herd of "flight to quality" fast money bill buyers exits their risk averse positions in T-bills (selling TSY bills or debt maturing in less than a year). Unfortunately this "crutch" will be unable to withstand the weight of another possible $100bn+ in TSY note supply, so selling pressure will likely remain while the fixed income world realigns their positions for Thursday's scheduled auction announcement.How much will the Treasury auction off this go round?
That said....we are defensive and remain cautious of originator supply dumps which will continue to have the potential to force lenders to "reprice for the worse".
Currently the UST10YR is losing steam and setting up to go lower...stay alert stay alert stay alert!!!