As stocks continued a trend of selling that began shortly before the noon hour, bonds have rallied with MBS reaching up to familiar levels. The 4.5 is currently up 14 ticks to 100-28 which has and may continue to prompt reprices for the better. The 10yr tsy shot to its own version of familiar levels with yields prodding yesterday's lows at 3.39. Just before 2pm, stocks turned the corner. For the S&P that was a level of 1061. That index is back up to 1065, lower than the 1068 open, and well off the highs of the day at 1074, but more than enough of a correction to convince bonds to turn their own corner.
Though we're up 14 ticks at the moment, nothing definitive has occurred with respect to a clearly defined range-bind reaching back to the beginning of the month. Since that time, MBS have neither closed below the high end of the previous range at 100-14, nor have they extended above the highest closing price of the last 120 days at 100-28. What does all this suggest? Technical trading levels continue to dominate. "Surprises" in terms of movement outside of previously defined ranges continue to be in short supply across all markets.
Unlike some of the more abrupt profit-taking that is often suggested by such heady moves, the fact that the rally has been contained by the range has allowed a bit of a consolidation of bond gains. MBS has flagged in a range between 100-25 and 100-28 whereas tsy's flag is in yield of 3.4 to 3.39. Be cautious though... Just because we haven't seen the profit taking follow immediately on the heels of the rally does not mean that we won't see it by days end. Additionally, the moves upward HAVE NOT been supported by increased or even steady volume--further evidence of the technically motivated range trade. So although prices are improving here, don't make any long term plans with these numbers. Until we firmly break that range, both the highest highs and lowest lows of this range are dust in the wind. You're my boy, Blue!
MBS Market Alerts
