Trading activity in rate sheet influential coupons has really died down since we experienced yet another directional shift following the Fed's latest POMO this morning. (Common occurrence lately READ MORE)

Volume has tapered off and price action has gone sideways while money flows did improve modestly but still negative on the day in benchmark 10s. Yeh. This has definitely been the slowest day of the week so far.

The benchmark 10 year note has settled right between my short term 62% fibonacci fan retracement and my long term 38% fibonacci fan retracement. We discussed these inflection points yesterday. If positive progress is to continue we must break through the long term 38% retracement level or yields are going to follow that originator unfriendly trend channel higher in a choppy fashion. For now, 3.38% is a clear pivot point where short covering picks up and new positions are added. This is helpful in keeping rates from taking off, but it has become clear, when 10s test 3.27%, bids go quiet and short seller activity picks up. This suggests we should be expecting a range trade between 3.27% and 3.38%. (asterisk attached to that...the lack of liquidity makes moves outside that range very possible)

The 10 year note is currently off its intraday price lows/yield highs, -3/32 at 93-29 yielding 3.351%.

The production coupon title belt holder is 19/32nds off its two day highs. The steep decline forced lenders to reprice for the worse yesterday. On an intraday basis, the FNCL 4.5 fell as far as 9/32nds from its high this morning which led a few lenders to reprice for the worse but not all. Based on my model, the current coupon is about UNCH vs. the curve's 5pm going out marks yesterday. This makes sense as MBS trading volumes are once again below average.

Below is a chart of loan pricing. On average, rebate is 24.2bps worse than it was yesterday. However it is important to point out that even after reprices for the worse yesterday afternoon, loan pricing was still improved on the day because lenders were offering aggressive quotes yesterday morning.  This puts us in a better spot than Friday but worse than yesterday and about UNCH on a week over week basis.

Unfortunately...from a big picture perspective...the modest gains we've enjoyed lately have done little to dent the massive declines that played out in December. Rebate is still very weak overall...

Again...10s are range trading between 3.27 and 3.38%. Thus, right now we would hope to see a modest bid combine with short covering in a quiet environment tp help improve indications from current levels. If we can hold 3.38% support in 10s, we'd expect to see the FNCL 4.5 bounce around near 102-00. 

4.875% is still BestEx. Any aggression at 4.75% should be locked ASAP. (assuming you must lock and close ASAP)