This is getting old...

It's tempting to simply copy and paste past analysis indicating that MBS remain in a world of their own, without significant movement, despite some more directional movements from other market sectors such as Stocks and Treasury's.  More of the same today...  Despite the fact that there has been little by the way of surprises today with ISM coming in roughly as expected and Bernanke not deviating much from the "bad, but less bad" stance, Stocks and bonds have both fluctuated.  Yields fell to 3.13 on the 10 yr and pinged off both highs and lows wider than 3 basis points apart before reaching 3.18 moments ago.  Stocks too have seen their vascillations.  After starting positive the dow fell nearly from 8458 to 8377, having since made up about 25% of that loss after rallying 50% by noon.  The moral of the story is a high presence of "back and forth" in the vanilla markets.

The more complex flavor of the MBS market is quite the opposite.  With on very brief exception, MBS have held in a ridiculously narrow 4 tick trading range as 4.0% coupons haven't exceeded 100-06+ nor gone below 100-02+.  This is about as tight as they come as far as trading ranges and all told, would leave us 2-4 ticks improved on the day if these prices hold through the end of the day.  So yet again, it's MBS playing the role of "Steady Eddy" as the other markets take turns reading for the part of "Nervous Nelly."

What does it all mean?

A couple things...  First, this is indicative of that which has been omnipresent: Fed Buying.  Having a majority of the bid side of the MBS equation not only coming from Fed, but also being actually scheduled for the rest of the year has quite simply taken a significant amount of risk and uncertainty out of MBS markets.  Past events and data points that would have moved MBS with, or even more than tsy's are no longer the same types of concerns since we can always see exactly how much the Fed has in their MBS envelope.  As far as MBS as one component of a broader market, today's stability also means that this AM's data and Bernanke's testimony were NOT the sagacious oracles of future movement the markets would like to see. 

It falls then to the treasury auctions, this week's headline event, with today's only matter of import in that arena being a 3 yr note auction coming up at 1pm.  3yr Notes speak more to the slightly higher interest rate space of MBS, as the 7 and 10 yr notes tackle sentiment ranging from the 3.5 to 4.5% space.  Still, above expected demand today will likely benefit the entire MBS stack even though treasury's would likely benefit more.  As far as divergence between different coupons ("up in coupon" or "down in coupon"), those suggestions will be more clearly made by observing the results of 10yr Note auction compared to that of the 3yr.  The 30yr auction coming up on Thursday is more or less "completely off the radar" of MBS traders.

We'll wrap up this post to make way for the forthcoming 3yr auction results.  Stay tuned for the first potential real movement of the day...  Current prices and and charts (as well as a few industry specific tidbits) in AQ's post below.  Make sure you don't miss that.