Are you nervous about the S&P's stubborn sentiment to stay over 950? We aren't panicking.
Volatility, as measured by the VIX, is no where to be seen and volume in the S&P has been nonexistent...allowing fast money day traders to run rampant today. In fact, as the S&P has tried to move higher over the past three days...volume has slowly tapered off. A sign that sentiment is finally shifting towards tests of previous price points (LOWER).
Plain and Simple: There is no strength behind the S&P's run to 2009 highs. Technical indicators tell us a correction is looming.
Fixed Income market participants illustrated this sentiment yesterday, pushing the 10 yr note yield 20bps lower....flattening the yield curve 10bps. Fixed income traders made their bets that a bias towards risk averse assets is starting to take over. So why are yields higher today? Profit taking and retracement of previous price points...TRADERS WANT TO CONFIRM THAT YESTERDAYS RALLY WAS THE RIGHT MOVE!
So far we think that the bias towards lower rates is holding nicely (thank for you reiterating that yesterday and today Ben!) . Although the 10 yr failed to hold 3.52...the 38% retracement level is proving itself as solid support.
ALERT alert: volume is also nonexistent in the TSY market...I mean this has turned into a real snoozer as traders happily.....WAIT AND SEE!!! That said low liquidity implies TSYs could get choppy too...we just hope that buyers jump in to take advantage of bargains.
The same can be said about the MBS market. After TSY yields fell yesterday, hedges were subsequently adjusted, therefore as rates markets remain range bound there isnt much reason for new positioning today. So activity has been limited to day traders, some overseas "down in coupon" GN buying, and modest originator supply that has been mopped up by the Federal Reserve. However, as MBS remains at the mercy of the gyrations of the yield curve...if the 10yr breaks 3.55%, we may see the FN4.5 move below 100-00 parnertia support.
I think this chart illustrates the "WAIT AND SEE"...
This is not me telling you to float. This is me telling you that sentiment is shifting towards a risk averse bias. That would be a good thing for mortgage rates.
However... although fixed income traders illustrated this outlook yesterday, they didnt do so without buying and selling options contracts that would protect their positions from an unexpected amount of optimism in stocks and consequently steeper yield curve. Progress was made yesterday and remains in tact today (SO FAR)...but dont get all comfy yet. Stay defensive and TAKE ADVANTAGE OF THE INTEREST RATES AND YSP (base pricing + servicing) THAT LENDERS ARE CURRENTLY OFFERING!!!
Dont forget what happened when the MBS current coupon fell towards the 4.0% range...LENDERS DIDNT PASS ALONG GAINS! Never let profits sit on the table too long...especially when lenders are reluctant to fill their pipelines to the point that they are turning down apps.
BET: book marks at 100-00. going out marks at 100-00
MBS Market Alerts
