The range of MBS prices continues to moderate with lower highs and higher lows. Whether you want to call this a triangle or a wedge or a wedgy triangly sort of thingy, the only way to do justice to the phenomenon is with the return of a not-so-old friend:
PAR-nertia!
As far as the 10yr is concerned, a VERY VERY VERY clear line in the sand is being drawn at 3.45%. Going back to low yields in March, this line falls on the 38% retracement, suggesting further significance (whether it breaks or not). This will be largely dependent on the rest of the week's data, earnings, and of course one of the main cue-givers of late: stocks.
So moving now to that third degree of separation from MBS, what might stocks suggest?
Whether you want to set your retracement levels at closing prices or intraday prices, the results are similar with the 38% retracement falling somewhere near 905. Incidentally, we're also seeing one of our most significant moving averages of late enter the scene at this level as well. The suggestion is a bit stronger for this to hold up as a ceiling. But if the S and P does break out here and confirm tomorrow, that's an unfriendly groundhog for MBS. If these levels hold as ceilings (10yr at 3.45 and S&P at 905) things may start to calm down a bit for MBS.
Fundamentally at the moment:
- supply's a bit lower than yesterday
- volume's a bit higher than recent days, though that's not saying much
- Fed is taking down all comers in terms of that supply
- Sadly, supply is offered at lower prices
- but nonetheless, a few bps of tightening in 4.5's vs. 10yrs has allowed MBS to stay a bit healthier than tsy's today.
You should be good until lock cutoff. Though we'll revisit in the close, if the S&P and 10yr hold their technical levels, it's a bit more of a suggestion to keep the float alive overnight. But please remember that you're just dealing with probabilities at that point, and surprise data or earnings are well known soilers of otherwise delicious bowls of cheerios.
MBS Market Alerts
