MBS MORNING: Recovering from AM Weakness
In the spirit of the week, MBS and TSY's endured somewhat of a scare this AM. FN 4.5 MBS fell to 100-06+, which would put it below some very important long term support. Tsy's were faring even worse as the 10yr yield backed up to 3.57. If any lenders had priced early, it's possible this weakness influenced rate sheets negatively. But if things hold steady from recent levels, lenders that already priced may see their way clear to giving something back, and the damage that would otherwise be evident in rate sheets to come, may be significantly lessened. Take a look:
The MBS chart is a bit more expanded than normal to show the bottom of last week's range near 100-16. The 100-10 price level is even more important in terms of long term support, however, it's only important to MBS... Tsy's tell a bit of a different story...
As we often discuss, MBS tend to perform a bit better than tsy's when bond markets are falling in price. In other words, tsy's tend to fall faster. So it's not surprising to see that tsy's HAVE NOT regained their long term critical support level at 3.50. A couple caveats: the trend at the moment is moving back in the right direction, 3.50 support is based on CLOSING marks, and even then we'd need to confirm the shift with another day outside the range tomorrow... Speaking of the "R" word, YES, THIS DOES mean that we are effectively outside the range in tsy's at the moment...
But this is the more likely of the two scenarios for range-breakage we discussed last week: a slow and steady peek as opposed to a "brutal" sell-off... If you're in the market for brutal sell-offs though, we may have something for you in the form of the recent S&P chart...
And although this isn't yanking the stock lever quite as much as the bond markets might hope, to quote some abstruse technical jargon: "it ain't hurtin' netiher!" So what gives? You might hear quite a few different explanations for stock weakness this AM, but it's likely a combination of those shorter term "causality-based" arguments and longer-term, bigger-picture considerations. Between analyst downgrades, first-time homebuyer tax credit desuatude, and weakness in the financials, there's plenty of reason for stocks to be down, but given the shape of the chart over the past few days, it's possible that technical factors are also contributing.
As we discussed last week, 1100 proved to be a no-go for the S&P, and here we are on monday morning with fundamental reasons to move down in price following a technical failure to break 1100. Could be the "one-two" punch effect, but don't count stocks out just yet.... Maybe just enough for bonds to catch their breath today so that we can go into the record auctions with at least a shred of dignity...