MBS AFTERNOON: Rates Give Back Early Gains

Heading into 5pm "going out" marks, trading flows in the agency MBS market are few and far between....

The FN 4.0 is+0-04 at 99-09 yielding 4.099%. The FN 4.5 is+0-04 at 101-30, holding near intraday lows.The current coupon is 4.148%.

After the AM facemelter dropped the current coupon down to 4.064% and racheted yield spreads tighter, "rate sheet influential" yield spreads gapped back out this afternoon as MBS trading flows dried up.

While headline ratings news on Greece and Dubai did play a role in the flow of money today, which I talked about in MBS LUNCH, volume in the rates market didn't necessarily imply a huge influx of flight to safety allocations in the TSY market. I suppose we did see increased activity this morning, especially in 2s, but that sentiment faded into the pit close. Overall, volumes were about average, perhaps slightly above average for a dataless day.The long end of the curve continues to be the weakest performing maturity.

10s are finding it difficult to maintain stability near the 3.38% mid-range pivot.

Zooming out to a daily chart, not only is this mid-range, several technical indicators converge near 3.38%. This is a high traffic pivot point!

The market is really just poking and prodding at these pivot points...waiting for $21 billion in 10yr coupon supply tomorrow. The recent yield curve steepener/bias to sell the long end of the curve combined with year end supportive buying gives me some hope of a reversal of this trend. I anticipate a decent turnout at tomorrows auction...the question is AT WHAT YIELD? We are likely to see buyers demand a higher yield in exchange for their demand. 

Of particular interest to me has been recent progressed made in the overnight session. Yesterday and today's sessions were heavily influenced by overseas buying...I am curious to see how active Asian accounts are tonight and how it shapes the NY session tomorrow.