Holy sh*t. What a day. I am tired.
I apologize for the implied profanity, don't tell momma cause she wouldn't be happy with me, but I feel like it's warranted after seeing FNCL 3.5s trade in a 23 tick range and FNCL 4.0s trade in a 19 tick range. Actually you can tell on me because momma said there'd be days like this...momma said momma said.
The December delivery FNCL 3.5 went out +0-04 at 100-00 yielding 3.503% and the December FNCL 4.0 ended the session +0-04 at 102-25 yielding 3.578%. FNCL 4.0s went out at session price highs! My version of the secondary market current coupon closed at 3.548%. Yield spreads were about 1bps wider vs. 10yr TSYs, 4bps wider to 10yIRS, and 3bps wider to 5yr TSYs.
Below is a screen shot of the MBS stack and indications on the TSY curve. This is me leaking another preview of our soon to launch MBS service "MBSonMND". :-D. As you can see, MBS prices made a move higher following the 2pm release of QEII buying details.
Trading volume in TSYs was above average while MBS trading volume was about average. Trading flows were two way in both markets with short covering sparking real money buying in TSY futures while lock desks were buying back hedges at the percieved price lows in TBA space. This price action is what we needed to see in order to continue riding the float boat. The uptick in open interest into rising volume and rising prices is supportive of a continued rally, now we need follow through off the base that was created this afternoon.
The bond market is closed tomorrow, this will give us plenty of time to ponder what happens on Friday and when we should be expecting mortgage rates to move lower. For now...take a deep breath and put down your bailing bucket...we're moving in the right direction again.
Just in case you missed it. This is why MBS rallied off the lows today: QEII Starts Friday. Fed Focuses Purchases on Rate Sheet Influential TSYs
PLAIN AND SIMPLE: The Fed will conduct 18 open market asset purchases over the next 19 trading sessions. They will spend about $105 billion which works out to around $5.8 billion per operation. 9 of those operations will have a direct influence over "rate sheet influential" MBS coupons (red), with at least $45 billion allocated toward the belly of the curve. If you add in purchases that include the 5yr sector (green), which is a benchmark for many MBS hedgers, this total rises to 12 of the 18 operations and at least $63 billion with a max potential for $84 billion focused on our rate sheet influential benchmarks. This is great news for mortgage rates.