Mortgages were all over the place today. We heard of profit taking on fast$ basis trades battling it out with a modest real money bid this morning. Then we watched as production coupons got whacked while the yield curve extended and duration went "bid wanted". And then lower and wider we went after benchmark 10s wore down positional support in the high-volume 3.40-42% range (10s).  Servicers even started getting a little antsy at one point but as one one trader put it...they are well-hedged at the moment. That would make sense given the intense extension we experienced in December.  Speaking of longer hedge ratios. Pull-through def. improved today. We had multiple reprices for the worse. Any lock desks decide to cut coverage? Who bought back a hedge??? I hope you didn't try after lunch because market got a liiiiitttle bit sloppy. Phew. Two-way traffic followed by heavy directional one-way flows and another round of originator selling after yesterday's uptick, ending in a last minute push back from bargain hunters who managed to lift us from the intraday lows and save us from going out at the wides.

Plain and Simple: Volatility picked up today. It was not originator friendly. But the MBS market put up a fight at the worst point of the day....once again proving a willingness to defend the outer limits of the range. 

For 10s, that extreme is the well known 3.50% psychological pivot. 3X now in past three weeks have we defended 3.50%.

Remember that stored energy MG mentioned on Monday...it was released today! That was a textbook example of consolidation and a failed continuation. Still well contained within a well-defined range. For now at least...

On Monday we called out a range and said MBS looked a little rich, and said we expected a return to range bound reality via profit taking. We noted that profit taking above. This contributed to the volatility, as well as extension selling.

MBS found technical support of their own.  Check out the chart we shared with you Monday. We're right back in the middle of the recent range. 4.875% IS STILL BEST EX!!!

At 3pm I marked the CC at +14.1pbs yielding 4.186%  +70/10yTSY. +62/10yr IRS. +203/5yTSY

Supposedly strong JOBS DATA was the culprit behind today's forced liquidation of post 7-year note auction longs and the ultimate retest of 3.50% (profit taking, liquidation, short selling, bid wanted. This price action washes out any potential shift in momentum we had going for us...but it doesn't do much else besides leave sentiment sorta flat. Speculatively the implied strength of ADP report makes us feel like we're doomed for a run at 3.70% in 10s and 5.25% in mortgage rates, then again, speculatively, it seems like the bond market is now set up well to rally on a disappointing NFP print on Friday. Isn't strong jobs data already baked in? Hello! NO REACTION TO A MUCH WEAKER THAN EXPECTED NOVEMBER EMPLOYMENT SITUATION REPORT. I feel like the bond market owes us some leeway here....

Speculative pondering aside, it sure was encouraging to see real$ defend 3.50% again.