MBS LUNCH: Adding A New Term To The MBS Lexicon
Range-Finder: n. eng. /r
Something would have been seriously broken in the markets if MBS had been able to hold onto the initial gains following the 30yr bond auction. Not only that, but those prices would create some non-MBS related problems for lenders as currents in the waters of competition would have been muddied with price point uncertainty leading to a less extreme version of the primary/secondary spread blowouts we saw in January and February.
The way things continue to progress is about as aggressive of a continued rally as we'd wish. Why? It's all about the ranges--two of them actually--one short term and one long term.
The short term range-finder is easy to see in the intraday chart above. As is often the case, the most violent move of the day followed the auction results and led off to the upside. But a retracement back to the dead center of the previous trading range followed hard on those heels arousing concern that another common post-auction occurrence might be next: an actual fall BELOW (and sometimes well below) previous trading despite the data indicating opposite support.
As the dust continues to settle, we have the more preferable of those two common occurrences in that the range-finder is maintaining "higher low" support from the AM through the auction and into current trading. If that's confusing in any way, perhaps the easiest explanation would just be to say: check out the red line underneath MBS trading.
A couple forces suggest the moderating range in the longer term as well. We'll leave it at a chart for now, and in the interest of time and space, cover the rest of the implications of the range by the closing commentary today... For now though, the chart below should suggest that it not surprise us to see the range moderate with some overhead pressure...