Into the afternoon, MBS have continued in a reasonably tight range of gains with the 4.5 now reaching up near 99-20, an 18 tick recovery from yestereday. Slightly higher highs have been seen from late morning to early afternoon and lows have been dramatically lower until forming a supportive shelf around 99-16, just before noon. MBS have been directionally more stable than the 10yr, though it too is near its best levels of the day at the moment with the yield at 3.53, a gain of 22 ticks on the day. Stocks are a small net-gainer as well with the S&P resistant to move much higher than current levels.
Looking a bit deeper into the fair degree of regularity with which the S&P has been capped we see a 23% retracement between June's highs and July's lows at 935.73--just above current trading levels. So it would not be unreasonable to think that a levels might reach a few points higher today. Since the retracements are based on daily closing figures, the index would need to actually close above that level to constitute an actual "test" of that technical level of resistance. It wouldn't be a surprise to see some "probes" shooting above this level to see what life is like up there before making a final decision on where to close.
Moving to a longer term view of MBS, the 4.5 is at some moderately significant technical levels as well depending on which portions of the recent past mean the most to you. As far as good news is concerned, we are above the "most significant technical level for 4.5's" mentioned in yesterday's blog, after falling below it yesterday for the first time in July. If it's neutral news you want, consider that we are dead even with the level attained after early June's rally from the lowest points of the year. On the pessimistic side, we haven't yet broken some of the floors from the first and last part of June.
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So although current levels do mean something in terms of technicals, they certainly do not suggest anything. Along those same lines of equivocation, it's actually a fairly boring day for MBS with the Fed and Money Managers soaking up the lower-than-recently-normal supply and preferring a longer duration collateral along with the rest of the market. Helping the whole rallying theme out is lower volatility on day offsetting lower volume.
Absolutely zero indications of reprice for the worse at the moment, so the standard "reassess before cut-off" theme applies.
2s vs. 5s: 146bps
2s vs. 10s: 257bps
5s. vs. 10s: 112bps
Oil: $61.59 (holding pattern)
EUR/USD: 1.4109 (holding pattern)
USD/JPY: 93.68 (holding pattern)
VIX: 24.79 (holding pattern)
3m/10yr Implied Interest Rate Volatility: 186bps (slightly lower)
MBS Market Alerts
