MBS AFTERNOON: Horrible Bond Auction: Best Event Of The Day!

Remember Max Headroom?  Now there's a blast from the past.  But whether you remember Max or not, his cousin Max Hedge-room made an appearance today and is the reason we can call the widely-panned 30yr bond auction the best event of the day for fixed income.  Oh my!  This will require some explanation...

Today, and in the future, you may hear about this auction as the event that CAUSED interest rates to move higher.  No... This auction was an afterthought to what the market was already doing!  And what, pray tell, was the market doing?  In it's standard fashion, markets have continued to "bake in" pre-data-event concessionary weakness.  In other words, we're rarely seeing bonds IMPROVE leading up to auctions.  Just think about how we're often noting that the ANNOUNCEMENT of supply has done more damage to bonds recently than SUPPLY ITSELF.  Rates move higher ahead of auctions and auctions confirm some version of reality that's slightly less catastrophic than the preparation allowed for.

Same story today.  In the sense that yields moved higher to hedge the event risk of the auction, 3.50 constituted "MAX HEDGE-ROOM" (using 10yr yields as a benchmark even though the auction was in 30's).  And despite an exceedingly brief spike up to roughly 3.515, there was no 5 minute period in which the 10yr note moved ABOVE 3.5.  In fact, ever since the auction, it has been noticeably avoiding such levels.

What does this tell you?  Nothing more than 3.5 (ish) is still what it has been for months: generally the high end of the range-trade in 10y yields.  Auction results in?  Meh...  Not bad enough to push outside the range, so the range holds again.  Speaking of holding ranges, over the last few months, stocks are up to their same old antics, showing no signs of life, no signs of directionality...

The support-holding for tsy's combined with the absence of guidance from stocks has MBS along for the ride in some respects and--as is characteristic for down days--a bit tighter.  The support at 3.5 today in tsy's coincided with 101-16 in MBS

In tonight's close, we'll bring you a chart of the 2s v 10s curve, currently at 272bps, aka "pretty darn near all-time wide levels."  So is the short end of the curve going to move up in yield or the long end move down?  Or something else?  Well, we don't know either, but at least you can see that chart!  Stay tuned...