Morning price action was supportive of an extension of Friday's data-driven interest rate rally. The move was uneventful and uninspiring though...
The econ calendar was vacant. And while a Fed speaker was on the tape, he didn't provide any new perspective. Instead alternate FOMC voter Dennis Lockhart shared his wishy/washy outlook on the economy in a speech given to the ATL Rotary Club. He still supports QEII, but says the economy has "durable momentum" and warns of potentially better than expected growth in 2011. He added dovish rhetoric on the labor market and cited state and local governments as a source of downside risk. He again assured us that inflation and inflation expectations are well rooted (10yr breakeven inflation around 2.38%).
Again. Nothing new learned there.
Once the Fed completed their open market operations - volume tapered off into the afternoon hours and liquidity dried up. Outside of some early morning activity in the front end of the curve, we would describe sentiment today as apathetic.
Uninspiring or not....
Benchmark 10 year yields still meandered through 3.30% range resistance before positive progress stalled at 3.27%. And we point out, this occurred regardless of pending 10y note auction supply which is generally something we'd expect to push yields higher (3s tomorrow, 10s on Wed, 30s on Thurs). Actually, for a minute there we thought the market was gonna take a run at an early concessionary effort against TSY, but the move never underway and modest positional buying pushed 10s back under 3.30%.
For us to get really excited, we'd like to see 10s break through 3.17% resistance without major profit taking.
The same can be said about MBS. The FNCL 4.5 ended the day +7/32 at 102-28. At 5pm I marked the CC at +72bps/10yTSY. Spreads were mostly unchanged vs the curve on my book. A heard scattered reports of banks buying back hedges ahead of Class A settlement tomorrow (THE ROLL). Other than that, loan supply was M.I.A.
A few reprices for the better were reported. On average we show loan pricing better by 32bps on C30 paper. 4.75% isn't best ex yet but rebate is getting more aggressive. 4.875 to 4.75 buydowns are however still very expensive.
Just a hunch but we'd expect to see some profit taking ahead of TSY's coupon auctions this week. This isn't indicative of a shift in sentiment, we're still encouraged by the market's reaction to the Employment Situation Report, we just need more motivation to make us believe it meant something. We didn't get that today. It's a waiting game (maybe three strong auctions help us rally on)
Here is MG's last micropost of the day..
After today's apathetic but not-at-all-unwelcome gains in the final hour before close (and extended into after-hours), tomorrow promises more excitement. Treasury auctions will be back after having last week off. Japan will be back after having the day off, and econ data picks up for the week as well, despite no top-tier releases. There's ICSC store sales early, Redbook at 855am, NFIB Optimism index and wholesale inventories round out the morning at 10am. As we expect no one will really care about these, the focus seems logically placed on the 3yr note auction at 1pm, even if markets pretend to trade in one direction or another on morning data. Until then, it may well be that Fed-Speak from Plosser at 830 is the most interesting scheduled news of the morning. FULL ECON CALENDAR
Tomorrow is Class A Notification Day in the TBA MBS market.