MBS continue to put on show after astounding show when it comes to strength versus tsy's and strength in general... Adjusting for the effects of borrowers' right to prepay and weighting 4.0's and 4.5's to MBS production, the resulting blended, weighted yield, aka current coupon continues its trend of being "really really low," (to use the technical term!) currently at 4.23932. Some simple math shows that MBS yields remain exceedingly close to tsy yields, with the cc/10 yr spread remaining under 80bps (0.80%) at 79.03 bps... With that tightness in mind and considering the recent bullishness in MBS, is next week finally time for the bullishness to take a breather?
Despite some intraday bullishness, tsy's are currently trading very close to yesterday's "going out" levels. The 2's v 10's curve remains steep, although ever-so-slightly flatter on the day at 262.8 bps... But pretty lines on charts no more predict the future than assumptions about how things SHOULD happen. If a short term bearish turning point is upon us, one also might not rule out a longer term bullish continuance to whatever extent we treat stocks as indicative of broader "recovery sentiment."
Why? In short, things are getting pretty dicey for the broadest measure of the stock market with yet another failure at breaking through the 1100 barrier. In fact, the only day the S&P even made it onto a field where those sorts of performances are possible occurred at the insanely low volumes of Veteran's day. After the fans returned to the stadium, the overwhelming verdict was that equities were not ready for the big leagues yet.
In the context of the bigger picture, MBS MUST eventually vacate these heady levels, but the moral of this afternoon commentary is to say that despite shorter term ebbs and flows, the more significant currents allow MBS to stay strong for a time, but also presage their demise... We'll talk more about the implications of this in tonight's close, but between now and then, consider the following chart as support for the "bigger picture" argument above... (and remember, the only spikes below the support line are settlement days! So in fact, it has provided perfectly reliable support... so far...