Check out the following chart of intraday 5.0 MBS:

Let's discuss...

  • Notice 10AM - 1230PM Eastern, the timeframe in which a majority of lenders release rate sheets.  As you can see, 101-06+ was the lowest level for a majority of that time and in recent minutes we'd fallen 4 ticks.  The more that lenders priced in the upward momentum from this morning that took us up to 101-13, the greater the potential for a reprice for the worse.
  • HOWEVER, that potential is very very small as lenders are not likely to price "on the come" considering where we came from this AM.  Furthermore, it's auction day and a day before FOMC.  So let us know if you see any reprices for the worse.  We think they'd either be lender specific or isolated at best.
  • Of more interest is the "teal stuff."  You can see lot's of movement after 1pm. 
  • Not on the chart, but also important would be an upside triangle breakout (technical analysis), that coincides with the spike between 2 and 3pm.  Then we have a bit of selling below the established floor that occurs in the second teal circle.  During this time, there was a lot of 1 tick "back and forth" such that many trades came across, but there was not that much movement.  This is usually a good signg of resistance (i.e. more and more accounts getting on board to "fight back" against the lower prices).
  • That final point + the widening spreads on the day + the moderate rally in the long end of the yield curve since 2pm should be good enough to keep us out of trouble for the rest of the day, but keep in mind that the domestic session officially closes at 3pm.  So the post 3pm market isn't always necessarily indicative.  
  • As always, we'll let you know if we lose any ground.

Don't expect a lot of love to get passed on tomorrow in terms of primary/secondary spread.  Most savvy lenders will have some degree of protection baked in for Fed day.  Regardless of the outcome, at the very least, it seems that the momentum of overall sentiment is finally shifting in the favor of fixed income and away from a sure-fire recovery.  A 3.0+ Bid to cover with over 60% indirect bid on $40 bln dollars of 2 yr notes SHOULD have been enough to let the Bond Gods know that we'll be ok, but perhaps they're waiting to find out if the demand comparitively INCREASES or DECREASES as we move up the duration-meter.  Oh right!  Maybe they're waiting for FOMC tomorrow as well.

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