The FN 4.0 is currently +0-10 at 97-27 yielding 4.223% while the FN 4.5 is +0-08 at 100-16 yielding 4.442%. The secondary market current coupon is 4.409%. The FN 4.5 yield is currently 93.5 basis points over the 10yr TSY yield, wider from this morning's yield spread of 91.8 basis points.
Welcome to day two of Broken Range Land for TSY's. We broke the longstanding 3.50 level in the 10yr note yesterday after having it serve as a boundary to the legendary range trade that has been the center of so much discussion in September and October...
Having the breakout occur yesterday raised a bit of a problem though as it could not yet be taken as a definitive trend shift for several reasons. Read more about that in last night's commentary if you haven't already...
So with those mitigating factors in mind (impending auction results especially), this morning's price direction was a somewhat expected moderation of the pre-auction concessions. In plainer terms, traders let their positions fall far enough yesterday morning that we have since experienced a correction as yields and prices find support at progessively lower (higher for price) increments.
So as we said, that range was already continuing to move lower this morning (in yield... MBS were moving higher), but with the release of the weaker than expected consumer confidence, bonds got slight bit of extra gust in the sails... BUT as if to make some sort of profound commentary on the pre-auction hedge, yields are unwilling to test 3.50 yet...
Perhaps this is like the "pit lane" that the treasury race car moves into. But cruise through pit lane may be waved off, or the car may indeed have to pull over for repairs... Either way, the driver seems unwilling to cross that big metal fence in the middle until getting some more direction from the pit crew... "Pit" crew? Pun intended? Well, it wasn't at first, but I'd say the 1pm auction results are as good of a candidate as any to fill this end of the analogy's shoes...
S&P just a bit up on the day at 1070, still below the 1072 resistance level (and a couple intraday bounces to boot). C'mon speed racer! One More Lap!!!!!!!!!!
The Treasury Department will auction $44 billion 2yr notes at 1pm. The When Issued 2yr note is currently trading at a bid side yield of 1.045%. The current "ON THE RUN" 2 yr TSY note is trading at 0.979%. After the 10AM release of Consumer Confidence data, the 2yr note yield fell from 1.015% to its current level.
Here is a look at recent auctions:
MBS Market Alerts
