On December 18th, Fannie 4.0 MBS were heading into the FOMC's 'tapering' Announcement at 103-12.  They shed nearly 7/8ths of a point by the following morning, hitting 102-18.  The first bounce back from those lows ended up setting the range for the next three weeks.  That range remained capped by 103-09 until this morning when 4.0s once again traded at pre-FOMC levels of 103-12.

There are a few major caveats to what sounds like a pretty positive scenario.  First of all, the roll is coming up in two days, meaning prices are more appropriately seen as roughly 10 ticks lower.  Then there's the matter of spreads being extra tight vs Treasuries, not leaving much room for improvement or 'value buying.'  On a final note, Treasuries themselves are not nearly faring so well compared to FOMC levels with 10yr yields currently at 2.947 compared to the very highest pre-FOMC highs in the 2.91 range.

This morning's gains have been moderate.  10's are only down 1.5bps and MBS only up 5 ticks.  The trade data did nothing to move the needle and the upcoming 3yr auction at 1pm is the least interesting of the 3 we'll see this week.