Ben Bernanke has ended his testimony before the the Senate Banking Committee. There was a decent amount of discussion regarding Fannie Mae and Freddie Mac, but nothing substantial enough to move MBS valuations.
The general talking point one should take away about the fate of the Enterprises: the reform process will be slow
Both Bernanke and Geithner have made it very clear that political developments in housing finance are in "No-Man's Land" and thus the rebuilding process has a long road to travel before significant changes are enacted. READ THE MND STORY
Trading in the bond market has been a tale of two objectives. On one hand dealers are trying to push prices lower (yields higher) ahead of $32 billion 7s at 1pm, aka selling into strength. These accounts are battling it out with flight to safety bidders and end of month index extension demand. Also in the mix is forced buying....traders who are stuck in short positions, forced to stop out losses as prices rise. In general, these trade flows are not indicative of a shift in sentiment in the bond market, although they are beginning to force their bullish bias upon everyone on its own (15 bp bull flattener). What I see as the most important observation is that dealers are telling us they think the long end of the yield curve is overbought now. When the majority of the market is forced to head in once direction, dealers are usually the first accounts to shift position and head the opposite way. A sign of things to come?
The 3.625% coupon bearing 10 year TSY note is +0-11 at 99-25 yielding 3.649%
The mortgage market is not especially busy today. There are still rumors floating around that Fannie will front load their delinquency buyouts, thus credit impaired MBS coupons ("up in coupon") are getting punished (April/May roll is doing just fine though). Price action seems choppy in the "rate sheet influential" side of the stack...at least relative to benchmark TSYs. One would assume, at these rich price levels, that originator supply was causing this commotion, but the MBS Ninja says its banks selling at expensive dollar prices. Banks are usually taking profits once their positions tick into the 101 price handle. We all know that activity in the primary market is slow.
The FN 4.0 is +0-08 at 98 the dollar while the FN 4.5 is +0-05 at 100-28. The chopatility is confined to a range.
NEXT EVENT: $32 billion 7s at 1pm.
Stay on your toes here...