MBS have really put on an impressive display of 'ground-holding' in that they've maintained Fannie 3.0 prices in the 103-20's since Monday.  That same day began a very gradual trend weaker for 10yr Treasuries after hitting 1.442.  In other words, from Monday to today, 10's have moved over 5bps higher while MBS have essentially held steady.  It's not that MBS haven't followed the ebbs and flows of the broader bond markets, just that they've been generally slower to fall and more willing than usual to keep pace with gains.

MBS Pricing Snapshot

MBS's determination to tighten up vs Treasuries (aka: keep yields flat while Treasury yields rise = tighter) now borders on impressive. 10's just shot up a quick 1.5bps on a lackluster 10yr TIPS auction of all things. These rarely move markets as they rarely come in at higher-than-expected yields, but this one did. Additionally, demand was a bit weaker than normal and a big 10yr Futures trade went through a few minutes before the auction results, assumed to be a seller.

Taken together, 10's shot up to just under 1.52 and currently trade at 1.5145. MBS have certainly ebbed from their highs of the day, down to 103-21 from 103-24 highs, but are still in the green. At this point, we'd stay fairly closely tuned to how MBS move for the rest of the day as we assume they'll only tolerate so much weakness from benchmarks before buckling under the pressure to some extent. Additionally, we always worry about afternoon liquidity considerations. If those combine with more Treasury selling, we could still things turn red this afternoon. If TSYs hold their ground at the current 1.52-ish ceiling, we might squeak by in the green.

Hurray for MBS! At least for now... The "little engine that could" remains several ticks improved on the day despite Treasuries getting pulled back into the red from advancing stocks and a higher Euro.

There's little to report outside the recent news that Germany's lower house of parliament approved the Spanish bank bailout. There was no big reaction, but risk markets did begin a small trek higher around the same time, led by the euro. Light volumes in Treasuries have allowed them to be easily pushed around this afternoon, though 10's are still well-off their earlier highs (1.5026 currently vs 1.5213 highs).

Fannie 3.0's are 3 ticks in the green at 103-22 and 3.5's are 2 ticks higher at 105-31+. If Treasuries continue to weaken, we could see MBS pay a bit more attention to the yield curve, but they seem to be comfortably tighter for now.