MBS MORNING: Lows Of The Day, But It's Still A Rally

Short-term and long-term charts are telling two decidedly different stories today.  If one were to look only at the short-term chart, we would indeed be at the lows of the day.  In this case were obligated to let you know that lenders who priced on a morning upswing are now within their rights to reprice for the worse.  But before you assume that you'll see widespread represses for the worse immediately, let's take a look at what the charts and the data calendar are telling us.

it's no surprise today is auction day.  The first flavor of the week is another round of $40 billion of three-year issuance.  In recent months the three or auction has been an above average performer with a majority of the auctions resulting in lower than when-issued yields.  At $40 billion, the ties the record for the largest three-year auction, but the most recent $40 billion issuance in November was well received.so, this manner would be the first suggestion that we shouldn't be too concerned to live price movements ahead of a potentially salubrious auction.  The next clue comes from the one-day MBS chart, which is actually the one that looks the worst as it shows lows of the day.

Yes my friends, those are indeed the lows of the day, but notice the price that they are approaching where resistance seems come into play.  It's fairly close to hold dollar prize that has provided decent support for 4.5 in the recent past and coincides almost too perfectly with impending data of significance.  What price are talking about?  102-00!

the technical picture in treasuries is not quite so cut and dry, but we can infer some support at the recently surpassed 3.42 level.  Logically, yields then moved to 3.38, a heavy inflection point, but have since encountered resistance around 3.36 in a similar fashion to December 3.  Leaning towards the extreme upside if yields were able to drop past 3.36, then 3.32 would probably emerge as the first line of resistance, with 3.31 not far behind.

It continues to be the SAME OLD STORY for stocks... No explanation needed...

Moral of the story: slight risk of reprices for the worse from lenders that priced before 10AM eastern, or who otherwise priced aggressively.  Other than that, 4.5's are still up 9 ticks on the day at 102-2, and the most significant movements of the day are most likely to come in response to the 3yr auction.  Stay tuned for that at 1pm Eastern.