MBS Pricing Snapshot

The stock market bounce is turning out to be less of a factor for bond yields, but as it turns out "bond yields" are factor for--well--bond yields. Namely, EU Benchmark 10's (German Bunds) are increasingly pummeled by the bounce back from Monday's 1.38-ish lows and are up to a lofty-by-comparison 1.632. That's where most of the pull on domestic Treasuries arises, and US 10's are definitely doing a good job of pushing back on the sell-off, like a parachute attached to the previously skyrocketing German Bund prices.

MBS, then are doing their own parachute routine on falling Treasury prices with the 105-00 line in the sand still trying to hold in Fannie 3.5's. Whether or not it holds looks like it's more to do with whether or not Bunds go any higher than their recent 1.639 highs. To whatever extent Bunds continue to bounce back from there, domestic bond markets should be able to continue to hold their ground. If Bunds break back toward or above 1.64, our support levels could break down.

Bond Markets began the Asian session in better territory, though in light volume with 10yr yields falling from 1.62 to the mid 1.6's. Stock futures followed the move, shedding a few points in the S&P. From there, things generally moved sideways uneventfully--a bit weaker into European hours but contained within yesterday's trading range.

That changed shortly after the first of two different announcements that Greece had formed or could form a government just before 7:30am New York time. The first wire quoted the minority leader Venizelos, and now the larger conservative party's leader Samaras is out 2 hours later saying the same thing. Apparently markets took Venizelos seriously enough as we haven't seen any major extension of weakness following the second headline.

10yr yields are attempting to dig in for support just over 1.66 for a 3rd time now. As per usual, 10's were/are on guard for the domestic cash open, but so far, falling stock prices at the open are helping 10's continue to hold their ground at the support level.

The MBS version of support is a fairly straightforward revisiting of yesterday's lows around 105-00 in Fannie 3.5's. They're currently down 5 ticks on the day and MBS continue to outperform Treasuries in general as they're likely the bigger beneficiary of anything the Fed will announce at 12:30pm today.

We're not out of the woods yet as far as weakness goes this morning though. Upside risk in 10yr yields wouldn't get too alarming anywhere under 1.70, so we'd draw that line in the sand ahead of FOMC and not read much into volatility ahead of the announcement itself. Member forecasts follow at 2pm and Bernanke begins his press conference at 2:15pm.