MBS MORNING: Yesterday's Rally Extends As Auction Approaches
MBS and Tsy yields rose past their long term support levels on Monday afternoon as markets put on the shield and armor for another week of record tsy issuance. This saw MBS prices on the 4.5 fall to 100-06 and the 10yr yield back up to 3.56.
The seller's remorse set in late in the day and carried through to yesterday morning, prices stabilized, and even staged a modest short covering rally--admittedly not our favorite kind...Interestingly, the rally stalled at the same levels that had so recently provided support, 100-16 in MBS and 3.5 in tsy's.
One the 2yr auction printed much better than expected, the follow-through was a simple and beautiful esxtension of the same trends established in the morning range. With one of the auctions down and only two to go, it was as if the next rung on the rally-ladder now seemed stable enough footing to set up for today's auction.
The preceding brings us up to speed with this AM's rally, which another one of those slow, steady, range-bound and logical extensions of a previous trend that neither has reason to accelerate or decelerate until the next shoe drops...
The chart shoes that, in both markets, the range leading into the auction was much tighter, while volatility was in play to a greater extent after the auction. But despite the wider range of prices, the slope of improvements remains fairly steady... Because of this, one might be wary of slight corrections and/or profit-taking any time prices stray too far above the top side of the channel in MBS or the bottom side in tsy's...
In stocks, the S&P is lower through some additional support levels after ostensibly finding support near 1061 yesterday. Currently, the index is down about 10 points on the day 1052.76, and though the stock lever isn't exactly in strict effect from a day over day perspective , the general it's not hurting bond price stability at the moment.
