Actually, MBS have pushed to their highest point of the past 5 days and are nearly back to their closing highs from the turn of the month, which we haven't seen since January 14th.

He's what yesterday afternoon through today looks like for MBS, the 10 yr tsy, and the dow:

As the 10 yr tsy has move down after the 10AM hour, MBS moved "less down."  And as the 10yr has recovered, MBS have "recovered more."  You can see on the chart that the 10 year as rallied about 4 ticks from mid-morning lows whereas MBS have moved up about 6 ticks in 4.5's and 4.0's (101-29 to 102-03 and 100-05 to 100-11 respectively).

This has had a positive impact on spreads, bringing us back down towards yesterdays tights.

We've had quite a lot of strength over the past 4 sessions, bringing us back into those rocky mountain highs.  Let's take a look at the longer term candle chart and then discuss potentialities:

What do we notice?  First of all, we are obviously historically high.  Granted, we've been expecting this on the announcement of the Fed's 2nd leg of the buying program.  But however strong we think MBS might get, the risk of turn around increases as we reach up into these levels.  With spreads having consistently tightened in recent days, this puts additional selling pressure into play.  Indeed, the slightest breeze could rock our float boat at the moment.  Our Chanuka-like surprising staying power is likely due to the "supportive" week that AQ and I have been referencing recently.  But to hope for a full 8 days might be wishful thinking.  When the market moved into a downtrent on January 7th, it stayed that way for exactly 1 month, and then consolidated slightly slower over the next 3 weeks though 2/26.  That began our current uptrend as noted by the trendline below:

There are two trendlines there: red for the actual closing or opening trend and yellow for the intraday movement trend we HAD been tracking before it broke through on the downside.  In terms of statistical significance, the red line hits more opens, highs, lows, or closes, not to mention, it hasn't been violated yet as our more aggressive yellow trendline has.  This suggests 2 possibilities from a technical perspective.  Least likely, but still possible is breaking (or confirming rather) above the yellow line, which would still leave us under the upper gray line (which is a level we've not been able to stay above for long, obviously).  More likely, is that March culminated a one month uptrend and what we have been seeing and will continue to see is a "consolidation" in a sideways range for a few days longer.  In this case, the red line should provide reasonable support through this week, but keep in mind, that would still leave room for some selling tomorrow or the next day.  Combine that with the high dollar prices and tight spreads and selling becomes likely.  Least likely is that "something" would precipitate a break below the red line, not this week anyway.  But what might that something be?

How about a 3 yr note auction coming up in a few minutes?  It's a record amount at $35 bln.  And with the aforementioned spreads being reasonably tight within the scope of the past few months, the penchant for further tightening may be strained.  Sure, in a tsy sell-off, we would tighten, but perhaps not enough to keep us positive.  The 3yr tsy is a proxy for mortgages that last 3 years.  In this case, we'd be looking at coupon ranges from 5.5-6.5%.  So I'd expect to see the most volume, either positive or negative depending on auction results, in those coupons.

Whatever the case, as long as lenders have coughed up enough of the gains for you, historically, you can see it's not a bad time to hedge your bets based on these high MBS prices.  That said, if the auction goes well, you can probably afford to squeeze a few more days of fence-sitting in before opening the protective glass cover on the "deal" button.  At least that's Howie do it at the moment.  Stay tuned for auction results in a few minutes...