After this morning's economically weak Employment Situation Report, 10yr yields broke out of a consolidating pattern of lower highs and higher lows. 10's are currently hovering around 2.06 near all time closing lows. Here's a bird's eye view of the breakout:
And with respect to the shorter term examination of that same triangle that we posted on Wednesday, here's a closer look where you can see how resistance is broken and how the line moves quickly lower after the breakout:
MBS had an awful time keeping pace with the initial leg of the rally in early August, and althought they aren't gaining as aggressively as TSYs at the moment, they are similarly near their all time best levels, both in the 4.0:
and in 3.5's
There are still almost no 3.5's being originated in the TBA market and the rates on rate sheets that could ultimately end up in 3.5 MBS pools are still looking more challenging than 4.0's. Here's a shorter term view of 4's. They look "rally exhausted" :
Whether or not MBS are rally-exhausted or not doesn't really matter as much to rate sheets as it might seem. Actually, we don't really want MBS to rally further here as it would be better for rate sheets for MBS to merely hold steady. But that means benchmarks would also need to be holding relatively steady and would likely require a steady drip of economically negative headlines and reports to achieve such a thing. Here's a look at the chart of the economic data that did that trick today: Non-Farm Payrolls. Note how the variations in NFP prints in the past still tend to follow the same sloping trend direction, and how they've done that again this time (especially if you discount the verizon effect, in which case, they'd hit the line perfectly).
It's been a good morning for bonds so far, but we'd keep an eye on stocks as well. Looks like the lever is in play to some extent at the moment, and could cause problems for us if they manage to rally: