MBS LUNCH: Do Friday Afternoons Even Matter?
Attention Freddie Mercury! Answer a question for us please. We occassionally mention not to place too much significance with trading that occurs on Friday afternoons after the 3pm Marking as it tends to be illiquid, low volume, and generally lifeless. Going a step further, one might even make a case for NOON being a more appropriate cutoff time. I used to think our friends on Wall St. were joking when they'd say "everyone leaves at lunch on Friday's," but the more I have occasion to observe Friday through Monday price action in the absence of data, the more I see it might not be such a joke after all...
The chart below shows noon on Friday and today with two verticle lines as well as PAR on the horizontal line. Additionally, there are some dotted lines showing prices honing in on parnertia right into the noon hour and then widening out from par immediately following the noon hour.
In the broader markets, stocks have retraced all their gains and are now trading around unchanged on the day, while tsy's once again stick it to MBS into rallies. But that's no surprise as "wider into flatteners" is the perennial dictum.
Plain and Simple: A vast majority of the time, spreads between MBS yields and Tsy yields widen when both are rallying. The bigger the rally, the liklier this is to occur. Notable exceptions would be when the data driving the rally is MBS specific, such as the conservatorship of Fannie and Freddie, or the MBS buying program announcement epochs.
Did you find it interesting that MBS went into the "par tunnel" by noon and popped out at par after the noon hour today as well? It's just more of the status quo in absense of data, or guidance... So although, we'll probably start tracking it officially so that we have some backup for the claim, this most recent Friday Afternoon at least, did not matter. Oh man... I just pulled up a weekly chart from last week through today. Not only do Friday and Today's noon levels line up, but the intervening time is the only time we spent out of the range that encapsulated the entirety of last week's action.
Wait... So you're saying we're smack dab back in the middle of last week's range? So.... If "Friday afternoons don't matter," and current prices are in the exact same range as last Monday's opening range, then last week doesn't matter either? And if last week doesn't matter, then.... Hold on.... I'm going to need help with this one.... Anyone seen Freddie Mercury?