MBS CLOSE: Returning To Most Common Prices In A Month

By: Matthew Graham •

If you haven't seen it, the more appropriate MBS Closing commentary would actually be the MBS Lunch commentary.  AQ covered exactly what I would have written in tonight's close.  A quick recap of a few key points:

  • Remember all the discussion about 101-27 a few weeks back and that it was the major SIDEWAYS momentum of November?  And we discussed it in the context of pivot point, inflection point, internal trendline?  Interesting then that it was hit more frequently than any other price in 4.5 MBS today, effectively restoring somewhat of a status quo before NFP
  • Remember discussion as far back as EARLY fall about the internal trend at 3.38 in 10yr tsy's?  Volume spiked today to the highest level since last NFP day in support of 3.38.
  • In the theme of RANGE TRADE, both MBS and Tsy's sought out their most neutral levels of the past month, their most visited levels.
  • the bottom line suggestion is that MBS and tsy's are set up to go in either direction on the "catalyst" data.  In other words, we discuss the movements within the range as being CATALYZED by fundamental data to start, with the technically motivated range of prices taking over.
  • Better than expected NFP would be the CATALYST that sends rates on their merry way to range trade to the next worst levels.  Worse than expected, and we may be revisiting the technical stops discussed earlier this week.
  • Whatever the case, volatility traditionally dies down after NFP which is usually a boon for MBS in terms of either price or spread, and sometimes both.
  • The recent highs in stocks were also NOT broken today and indexes ended up pretty much in the middle of a very tight and direction-lacking range over the past two weeks.
  • If you've gotten the impression in that time that "nothing matters until NFP," the charts more or less confirm that.

So the storm of volatility has been weathered and tomorrow is the actual "big show" after a longer than normal period of "warm-up, exhibition, and practice."

Whatever you haven't locked by tonight is at the mercy of the data and the technical stops that lie in whichever direction the data suggests.  So in a sense, the hard work is done, and we are free to watch for sell-off's or the hints of weakness on a purely intraday basis tomorrow.

There IS other data tomorrow following NFP as well, should the report itself fail to make a convincing case for one direction or another.  It's not likely to have a huge impact, but if needed, it may provide additional clarity on how the market chooses to interpret a relatively neutral NFP.

  • Fed's Plosser at 10
  • Factory orders at 10
  • Fed's Bullard at 115
  • Jim Bunning announces first annual "Bernanke Bash" as the NFP afterparty tomorrow.

Ok, so the last one isn't real, and won't mean anything to you unless you actually listened to or saw Bunning's comments at the confirmation hearing of Greenspa---um, oh, Bernanke earlier today.  I still haven't figured out what a "Fraud-ian slip" might be though...