MBS LUNCH: Moderate Improvements Capped By Friday Highs
Today's 3yr Treasury Auction is still center stage, pushing tsy and MBS prices slightly higher since additional time had passed for markets to digest the relatively favorable results.
Immediately following the auction, it would have been hard to pinpoint any significant data release simply by watching market prices for a reaction. Even now, despite moderate gains, the scales are not tipped decidedly enough to cause a true rally or cuase any weakness in stocks. In fact, apart from a fairly nominal blip, this auction has been "taken in stride" to a great extent. Despite the apparently uni-directional movement in the chart below, the actual ticking of prices at the current moment suggests a higher probability for prices to stay capped by Friday's highs in MBS.
As for tsys, the only resistance suggested by Friday's action would be the post NFP spike that was later tested and confirmed at 1pm of 3.41. Talking about Friday's low yields as resistance for today is wishful thinking as the bottom of the range reached 3.34. Current yields are staying north of that 3.41 mark for the moment as MBS prices stay south of their resistance at 100-26.
Stocks are also muted in response to the auction--even moreso than bonds actually. The S&P is making a brief pit stop near it's lows of the day, likely to trace relative bond directionality. A unified effort by stocks and bonds will likely be required for any of the players to meaningfully break out of ranges established by this AM and the opposite extremes seen moments ago. It might happen, but even then, volume is low to the point that the aesthetic of the MBS chart would be the most beneficial result.
Sorry to be such a downer in the midst of an ostensible rally, but nothing we're seeing now really means much. And if ranges are broken, it would have to be something fairly extreme to justify an increase in heart rates. The good news is that improving prices are improving prices, and a decent handful of lenders will act on it with reprices for the better. So there is a short term benefit, but no committed votes for tomorrow or beyond have been cast by today's data and the concomitant reactions in the market.