• MBS goes out +0-02 at 100-05
  • 10yr Tsy basically unchanged at 3.80
  • Secondary market current coupon: down 1.1bp to 4.482%
  • CC MBS yield spreads slightly wider
  • Dow unchanged and S&P down from 1217 to 1212.
  • among the lowest volume days of the month on limited data that kicks off a week with tons of data to come.

2 Day Chart:

When we say "looking for opportunities to lock," it's to suggest that we keep our eyes open for competitive rate sheets that benefit from the relatively higher MBS prices than Friday.  We still feel the market may be on the cusp of a turn-around and that one of these afternoons or early AM's may be our last look at 4.5 coupons over 100-00 for a while. 

That's not to say we're EXPECTING a sell-off for any particular reason, just that from an origination standpoint, we've down really well so far in April and this week has some noticeable volatility in store.  As can always be the case with auctions and FOMC announcements, there's a certain element of uncertainty inherent in the data.  No amount of technical and fundamental analysis could keep rates moving higher if for instance, the 5 yr auction came in at a hyperbolic and hypothetical 4+ bid to cover at a 2.25% high yield. 

Of course that won't happen, but the exaggeration is intended to make the point that if the data we're about to get is lopsided enough in one direction, it can lead to markets trading against the grain of expectations a bit.  That's a bit tricky in and of itself as "expectations" largely depend on interpretation, and the "correctness" of one's assumptions is probably limited only by the degree to which they could support their opinion.  For me, I'm seeing plenty of the standard issue short-term indecision that often precedes FOMC announcments, auctions, and GDP.

But the longer term trends remain toward higher yields.  Take a look at what is probably the most disturbing one in the lower section of the following chart:

But even in those long term charts, the story is seldom one-sided.  Yes, the trend is toward higher yields but even if that proves to be 100% correct, there's plenty of room for Friday's peak to lead to a retest of the diagonal line, putting 10yr yields almost 4bps lower tomorrow.  And if that happens, MBS would likely benefit to some degree. But looking up to the MBS chart, we might guess that "degree" would be something less than the resistance seen around 100-16!  Know what I mean?  It's like a pinball machine!  and it doesn't end there.

Let's zoom in to a one-month chart.  More technicals emerge--especially between 100-05 and 100-10 in MBS.  Not labeled, but easily seen is the 100-16 level that looks fairly stalwart in it's defense of higher prices.  But the two red lines used can be quite helpful in that a break above 100-10 or below 100-05 respectively could be a hind of momentum in one direction or the other.

Same story for 3.76/76 and 3.83+ in the 10yr.  For the record, when we're talking about potentially informative breakouts, we're looking for something definitive--not a mere "toeing of the line"

Tomorrow kicks off a 4 day run of data that will provide plenty of potential justification for line-toeing and more!

- Case Shiller, Consumer Confidence, and Investor Confidence all in the AM, with the 2yr Tsy Auction at 1pm.  The rest of the week gets even more intense from there (well, at least to the extent that we'll draw conclusions from auction participation or that Bernanke will say something different, or rather say the same things in a different way!).