Stocks are moving lower fast and interest rates are rallying as a result.

Benchmark 10yr yields have moved notably lower over the past 18 hours in part thanks to a strong auction yesterday (and Tuesday). Additional improvements are being seen this morning though as the major equity indexes have sold through long standing support. 

S&P futures just stomped through 1300 and look to be going even lower. HERE is a chart illustrating the significance of that break. Next on the to do list for the bond market is the final auction of the week, $13 billion 30s will be sold at 1pm.  We don't want to get too excited ahead of that fundraising process either...for two technical reasons related to the recent range.

The 10yr note yield range we are working with right now is between 3.40 and 3.70%. Firm support is found at 3.57% if yields back up. On the other side of the coin we have yet to confirm a break of 3.40 in this latest k rally attempt...sustaining a move through a cluster of resistance between 3.42 and 3.40 is our next goal. Otherwise we'd expect to see more day trading and back and forth price action in the bond market.

Another observation....The following chart is HOURLY so it doesn't necessarily show just how well resistance came into play this morning. These are essentially the competing trends from the previous "range" (remember January?).  We continue to face heavy resistance in reentering any part of it with certainty.  On a horizontal basis, sure...  we've cracked into previous levels, but as far as hooking back up with actual TRENDS, we're still waiting for that confirmation.

That's not to say the confirmation couldn't come soon enough, merely that it hasn't been seen yet.  MBS has shown it's own sort of hesitation around current levels, usually preferring to back off either around 101-28 or the 102-00 level itself.

102-00 is a psychological pivot.

WHAT DOES THIS MEAN FOR LOAN PRICING?

AQ explained the environment in THIS post last week.

"Lenders have moved the Best Execution 30-year fixed note rate as low as they possibly can without drastically altering their pipeline hedging strategies.  This is a factor of what production mortgage-backed security coupon is most liquid in the secondary mortgage market. On conventional loans, the 4.50 percent MBS coupon is the hedging vehicle of choice for lock desks.  Home loans with note rates between 4.875 and 5.25% are generally used to fill 4.50 percent MBS coupon trades. Until MBS investors demonstrate sustainable demand for 4.00 percent 30-year fixed MBS coupons, lenders will not find it economically efficient to quote 4.75 percent note rates without expensive permanent buydown costs. From that perspective, if you are floating a conventional home loan interest rate, you should not be expecting further improvements to your actual rate in the short term. If the bond market recovery rally continues, closing costs will improve, but on the whole, it will take a sustained move higher in 4.00 percent MBS coupon prices for Best Execution to dip below 4.875 percent."

Plain and Simple: The bond market and mortgage rates are still in limbo about sustained improvements. More motivation is needed to spark snowball buying.  If C30 Best Execution is to break the 4.875% barrier, FNCL 4.0s will need TO move closer to par. That will require the 10yr note breaking 3.40% resistance and testing 3.31%.