If you've had time for a quick check of MBS prices, you're already aware of the rally. Bond markets have been mostly rallying all morning as stocks have been selling. At first blush, that might seem like it's due to the much-weaker-than-expected Consumer Confidence readings, and while that not doubt helps the situation, the real rally was and remains about the EU. But first, if you haven't had time to check markets and Econ Data, here's a quick look at the Live Pricing and Economic Calendar windows from MBS Live!
As you can see on the dashboard, MBS prices are well off their recent lows. This makes for an ongoing supportive theme around the 101-00 level in Fannie 3.5s. Last week we talked about how it would take a sustained move under 100-20 to rule out that ongoing support at 101-00. Also it looked to be at risk yesterday (or getting close anyway), but with this morning's rally, the theme seems to be continuing on a longer term chart:
The same rally also brings 10yr notes right to the positive edge of their recent technical range at 2.155, but sadly, they look to be bouncing there for now:
So what's this all about? Granted.... Consumer Confidence was just awful. Take a look at the super long term chart. Things actually don't get much worse...
But then consider the timing of that report--10am--versus the following chart showing an overlay of 10yr yields, stock futures, and volume of 10yr TSY futures contracts along the bottom. The Live Chat window on the MBS Dashboard was abuzz shortly after 930am when the following chat came across: "Victor Burek (10/25/11 9:38AM): EU finance minister meeting for tomorrow canceled." This was confirmation of a possibility raised by FT.com earlier this morning and whether or not markets read it as a bad sign or perhaps simply confused it with the cancellation of the summit itself, (EcoFin meeting not the same as the EU Summit. Read More if Curious), the volume in the chart below shows it as the most important driver of the morning's trade--not Consumer Confidence. I'd also throw out there that there's probably more than just a little of the "herd mentality" playing out in equities markets right now. "Something cancelled in the EU on Wednesday?!?!" = sell first, clarify and adjust later...