The FN 4.0 is currently -0-11 at 98-01 yielding 4.203% and the FN 4.5 is trading -0-09 at 100-20 yielding 4.426%. The secondary market current coupon is 4.359%. Against benchmarks, the FN 4.5 yield is currently 102.6 basis points higher than the 10yr TSY yield and 84.3 bps higher than the 10yr SWAP rate (midpoint). Rate sheet influential MBS coupons are outperforming benchmarks so far today.
Coming up with creative ways to convey the same sentiment is taxing, even for hyperactive extroverts...
Yes, it's still a range, but today gives us an opportunity to take a slightly different look at it. Admittedly, it's similar to the "perspective" posts that endeavor to remind you that price losses are not the end of the world because of some redeeming factor in the bigger picture, but those are normally reserved for the bigger picture, end-of-day type posts. So here's one in the morning!
Now...What type of price action would lead me to prepare you to be soothed with aforementioned perspective?
Yep, that should do it... While it is a departure from the almost mechanical range trade that occurred yesterday (think "symmetry"), ranges are still in play, not to mention losses have not yet reached what would equate to .375 in rate sheets. Still, you may indeed see that much of a hit in day over day pricing once the "take it away faster than they give it back" premium has been factored in. So the following perspective can hopefully serve to moderate pulses to the same extent as it's likely to moderate the range...
So, what we talkin' bout Willis... The two red lines in the MBS portion of the chart above are not randomly inserted. As is the recurring theme in discussing the range trade, we've seen them before. In previous sell-offs, things always seem to be getting "noisy" as prices get into the lower 100-20's, and then again right around 100-15... Since MBS are not the favored technical benchmark however, let's set them against something that IS to see why this might be...
The main purpose of the chart above is to look at the 117-26 line which has been very pertinent to tsy future technicals in recent weeks. The line at 118-00 is shown more due to the fact that this is where prices are right now, and to a lesser extent that whole dollar levels are almost always technically/psychologically traded in futures. The tangential point is that, after bouncing off the lows of the day and falling a second time, MBS are finding their support at 118-00. The more pertinent price level in futures recently has been 118-05...
Throughout September and October, that 117-26 has been the floor in tsy futures, just as the corresponding price level of 100-15 has been the floor for MBS. Although prices do dip briefly below these levels, the "modal" low is more significant that the absolute low, especially since this hourly chart doesn't show that we never actually CLOSED below these levels. More important is to notice the frequency with which prices in both securities are stopping here... If we break lower than 100-15 on an intraday basis, we can then look to those absolute lows discussed last night at 100-10...
How about stocks?
Moral of the story: there are various horizontal price levels scattered all across the price spectrums in stocks, bonds, and MBS.
Think of these as a Plinko board turned 90 degrees...
At the end of the day, there are only so many places the plinko chip can arrive. But between Bob Barker's silky smooth hands dropping the plinko chip and it's final arrival at one of the pre-determined levels, a lot of bouncing occurs. And in MBS just as is likely the case in The Price Is Right, we'll know something is wrong if the "plinko chip" moves outside the boundaries of the board. Their boundaries are some sort of spraypainted plywood... Ours are our technical price extremes.
But until then, it's the range trade...
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