- FN 4.5's up 11 ticks at (speak of the Devil) 100-16
- Current Coupon yields spreads wider
- 10yr notes down almost 6bps at 3.767
- S&P ticked below it's opening level from Monday, erasing 4 days of gains in one session.
- for stocks, it's the biggest loser since 2/4/10
- Beginning to look a lot like locking
You'll notice that AQ and I tend to ramp up our fervor with respect to locking your loans around market peaks. We could ponder why that is, but more importantly, we've been ramping up the lock discourse recently and this afternoon, we see the highest risks of short term retracement in a while. The market CAN continue to rally from here, but doing so would mean breaking through some very tough hurdles for MBS, namely 100-16.
So the decision you're faced with is whether or not you WAIT TO FIND OUT if bonds can extend their rally next week, potentially putting 100-16 in the running for short term support OR if you leave well-enough alone. The charts that follow should help you in your decision making process. Just remember that MBS valuations will tend to resist big rallies and sell-offs compared to treasuries.
Case in point: MBS up 11 ticks vs. treasuries up 17 ticks at the moment. In other words, MBS react to a LESSER DEGREE (usually). Reason I bring this up: even if treasuries can extend a bit more next week, MBS probably won't be as willing, adding credence to an argument for a 100-16 lock trigger.
On to the charts:
What you're looking at in this chart:
Here's a simple 10yr yield chart in 10 minute intervals back to 4/6--relatively short term. The red lines are the horizontal yields of significance and the diagonal lines (teal and white) are the TRENDS that do the best jobs of connecting as many highs and lows as possible. Long story short: this chart is a testament to the uncanny level of technical trading. Indeed, almost all the major "bounces" occur at one of these lines. The outermost diagonals are the same trendlines from yesterday's closing blog and you can see how the high's on the 15th gave way to a test of the opposite side of the spectrum today. That test is still very much in question as yields rose a bit into 3pm marking to be right in line with the trend. There's no magic here, just some levels and trends to be aware of as they can act as early indicators that the trend is shifting. When the last series of yield lows was made around 3.81 over the past 4 sessions, that LOOKED like the bottoming (until today). So with today's rally, we're back on patrol for the next signs.
What you're looking at in this chart:
This next chart zooms out to a longer term view to show the longer term pain in the bond market. You can see the general downtrend in yield represented within the dotted lines. But the longer term solid lines show the gradual uptrend. Although the broad implication is for higher rates, you can see the space clearly left for a push down to 3.7 (probably 3.71 if it happens. Ask us why!) But if things go no lower, it only further confirms the trend toward higher rates (not that it's much debated anyway). Finally, the 3.85 line is exceedingly important because ever since the late march sell off, yields have NOT closed BELOW that level for two consecutive days, UNTIL TODAY! That's more good news! At least in the short term. BUT! A move back above would FURTHER CONFIRM a shift to higher rates (as rates never closed that high in Dec/Jan... Recent phenomenon only!)
What you're looking at in this chart:
On to the MBS charts... First the shorter term rally, where we can clearly see the significance of 100-16 ("secondary resistance"). By the time I'm done writing this post, MBS will have risen back near those levels and turned away again. That puts the primary resistance trend at a disadvantage going forward as 100-16 has been stalwart in its defense. And whereas the LOWS have been climbing, between 4/13 and today, the HIGHS have been falling. Unless bonds in general can push the fight forward, 100-16 is the stronger competitor when those opposing trends collide. The remaining lines just serve to give us an idea of the general trend. Note that they are converging. This usually means things will pop out to one side or another. And without a 10yr note on it's way to 3.71, change of a "bad pop" is slightly greater than a "good pop." (keep in mind this is forward looking. We're not talking about today, or even Monday for that matter, but potentially soon. All that to say, we CAN rally higher, but there's less and less cause to bet on that at the moment.)
What you're looking at in this chart:
Finally, for some long term perspective, a longer view on MBS. Oh hey! Almost forgot that this long term chart COMPLETELY EDIFIES the significance of 100-16. Ah! That's right! I knew I wouldn't have been so keen on the idea without a better reason than two measly little highs. So in this chart, you have an MBS market that has only crossed over and back the 100-16 level ONE TIME IN THREE MONTHS! (!!! <----more emphasis). That kind makes me feel "odds are against it, but if it happens it's a fairly big deal."
All that's left now is for you to decide if these charts make you feel like not taking that risk or if you'll want to wait until next week to see if prices cross over 100-16. No major data on Monday, but auction supply comes up on Thursday.
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