It's already been said that today was a generally quiet day in the bond market. But it's the kind of quiet we'll smile about because it carried the production MBS coupon, Fannie 4.0's, 6 ticks higher than the post-NFP rally and a full point above the Friday price lows. Not a bad two-day move. Unfortunately we must cloud the underlying itensity of the rally by adding the "low volume/thin trading conditions" caveat. Not to mention the fact that we made most of this progress in the overnight session.
I guess we'll find out how fickle the bond market really is when Treasury auctions 3-year notes tomorrow at 1pm (plus MBS prepayment speeds will be digested tnight).
Caveats aside, the move was originator friendly and reprices for the better were noted.
So it's tough to say if we're seeing a test of 101-00 due to a low volume mostly sideways day or if it was a product of a weak jobs number and Bernanke's dovish comments last night. IF SO..it is possible that MBS and treasuries could make attempts to retrench themselves and establish some support underneath prices.
Rally Targets....
For MBS, naturally, we'd hope to see that occur above 101-00 (and it would have to get a bit higher as well to account for impending settlement).
For treasuries, the potential support levels are a bit of a moving target at the moment. Indeed the line I chose at 2.95 was relatively arbitrary, but it did seem to be coming up against resistance this morning. Overall we'd like to see 10s head toward 2.84%, break it, retest it, add to the rally into the price dip, and make a run at 2.75% again. That would at least make 4.25% phantom again.
A bit of a longer term look shows other touches in this general area between 2.93 and 2.97.
You might remember the stock chart I posted this morning showing that stocks were not yet through their early month highs. Not sure if it means anything on this quiet trading day, but the same can be said for this afternoon. AQ says asset managers are chasing a rally and don't want to be underperforming the broader markets into year end. That's one reason we're so defensive of any rates rally into year end. So many factors could change that though...including a trend of worse than expected labor market data and continued Fed speaker explanations of why QEII policy will not end in rampant inflation.
To give you a rough idea of today's volume, Friday saw about 1.5 million contracts traded in 10yr futures versus today's 700k and change.
3yr tsy note auction tomorrow at 1pm.
Consumer Credit at 3pm.
MBS Market Alerts
