The dollar is weaker, oil prices are higher, and stocks are rallying---STILL. The S&P is trading at a new "recovery rally" index high print.
Rates traders are ignoring the stock lever---for now at least.
Since the auction cycle ended last Thursday, the 10 yr note has staged quite the recovery rally of its own...yields have fallen 14 basis points from the 3.779% high all the way down to 3.634%...which happens to be a very technically relevant level: the 62% retracement of the Dec. 21 sell off. The 2s10s curve is also flatter....now resting at 274bps after peaking at 284bps last Wednesday.
Again, this has occurred while stocks have rallied. Do you think the LOW VOLUME stock market is having much of an effect on the yield curve at the moment? I do not believe so...rates traders are focusing their strategies around TECHNICALS and AUCTION SUPPLY....which we happen to get more of tomorrow at 11am.
Mortgages are trading in decent volume. Flows are not slow but they are not robust either. New loan supply from originators is over $1 billion. Servicers have been cited as a source of demand side support for "rate sheet influential" MBS coupons. The FN 4.5 has however failed to break 101-04 resistance while 101-00 has served as support.
THE PHRASE PLAY THE RANGE UNTIL THE RANGE PLAYS YOU RESONATES LOUDLY IN MY HEAD AT THE MOMENT
10 yr yields have fallen fast, all the way back to the outer limits of range resistance. While there is some room for rates to move marginally lower...our benchmark guidance giver is running into firmer and firmer layers of resistance. Combine that with stocks not showing any signs of a sell off and new auction supply on the chopping block tomorrow morning----and I would be considering the idea of taking profits on my pipeline.
The speculative rally came. Lenders passed along some gains....now we're very close to the rate sheet rebate highs of 2010. Lock at the price highs, float at the price lows.
PIGS GET FAT HOGS GET SLAUGHTERED.