FN 5.5 30YR MBS = 100-10  .... -0-05 (5 ticks)

The current sell off coincides exactly with the poorly bid 2 year auction.  With MBS speeds on 5.5's around 6 years and 6.0's around 4 years, traders are considering the 2yr more of a barometer of MBS demand than normal.  The bid-to-cover ratio was "not so good" at 2.08.  Considering the record size of the offering ($36 bln), this is not horrible, but at least it's cause for MBS to sell slightly.

Reprices for the worse are likely, but be advised spreads remain strong, so any positivity for tsy's tomorrow could enable a climb higher for MBS.  Still, this brings us well below our "dance floor" level of 100-13.  Unless we can get back there by this afternoon, locking is looking better and better.