Hello Hello.
It has been another chopatile morning in the secondary mortgage market. Lenders have published pricing and guess what...yeh...pretty much the same as yesterday (+- few bps).
At first glance it appears that not much ground has been made in MBS world. While that is correct in terms of dollar prices, which are nearly flat across the coupon stack, "rate sheet influential" yields are outperforming TSY yields. MBS/TSY yield spreads are tighter!
So while not much ground has been made up...we havent lost any either! Check out the triangles forming around 100-19. BANG BANG BANG OFF THE SECRET LINE....
Here is a zoomed out perspective. Back and forth, back and forth, WHOA knee jerk reaction, back and forth, back and forth. Overall it looks like most of our time has been spent watching boring trading action...right?
Yeh. Boring sideways trading is ok though!Especially when you consider how our directional guidance givers have performed since last Thursday.
Notice what 10 yr yields have done since the TSY auction announcement last Thursday...YIELDS HAVE STEADILY RISEN!!! Yet the FN 4.5 has held a relatively stable range (see chart above). Is it more obvious how "not losing any ground" is actually a positive, even though price action has been mostly flat.
With not much data on the calendar this week and a general holiday hangover slowing the pace of trading....there really isnt much else for market participants to focus on besides looming SUPPLY. The below chart should provide a visual depiction of how traders have "made room"for this week's round of auctions. The yellow line is last Thursday when TSY supply was announced. The blue line is today. The red fill shows you how the yield curve has changed since auction terms were released.
The yield curve is steeper! Longer maturity debt has been outperformed by the short end of the curve (thanks to historic monetary policy actions). Trader's are forcing TSY to pay up...just because there is nothing else to do!
Which leads us to 1pm when the TSY department will auction (reopen) $20 billion 10 yr notes. Given the previously discussed lack of noteworthy data, recently higher rates, and generally better behavior in stocks...we are feeling less optimistic about today's 10 yr auction. We wouldnt be surprised if the auction is stopped out at a yield higher than where the "When Issued" is trading at pre-auction (expecting a tail).
10 yr WI currently 3.518%
Here is a look at recent 10 yr note auction results...
STAY ON ALERT AT 1PM...MBS have been outperforming benchmarks and are currently RICH. A corrective cheapening is possible...reprices for the worse are possible!
2s/5s: 146bps
2s/10s: 257bps
5s/10s: 110bps
10s/30s: 85bps
The dollar remains weak, oil prices are holding recent highs, and the S&P has it sights set on 1,038.
PS...Beige Book at 2pm. Might provide us with a taste of how the market viewed yesterday's Consumer Credit contraction Dont overlook it!
MBS Market Alerts
