MBS LUNCH: Still In Bad Shape, Bleeding Stopped For Now

MBS MORNING discusses reasons why this is the first serious breakout of the long term range.  It's important reading for today.

Since then, MBS prices and Tsy Yields have continued to operate in ugly territory, although I will take a moment to register a vote for IRONY that most of us would be considering a 4.5 MBS coupon falling under 101-00 "ugly."  Some big picture perspective, but little consolation to the hopefully small allocations of floaters in the pipe.

Here's a visual on the last few hours of price and yield changes.  Most of the intraday lows have occurred at 100-22 in MBS.  Prices have since rallied a few ticks putting the 4.5 down 10 ticks on the day at 100-26.

In tsy's, 3.62, a level so "outer limits" that it's rarely been mentioned in recent weeks, has made a good showing of support.  However, this is of no further benefit than merely edifying the market's ongoing decisions to stop at technically significant levels.  Then again, the edification of that level at least lets us know to keep an eye on it as a barometer of trend.

I can't stress enough how high the volume is today given that it's a day before the FOMC announcement!  Not good.  And it puts a lot of pressure on tomorrow's data for any hope of a rejection of today's range breakout.  The fact that there's no consensus to suggest that should trouble us in the short term.  I'm troubled!  Who's with me!?

In troubling times, even if they prove to be only fleeting, I like to take a look at the longer term charts, if for nothing else, to get some perspective. Starting with a longer term tsy chart, you may be able to notice other instances of range breakouts that were immediately rejected the next day.  In particular, you can see late october and early Nov. breakouts of the yield range only to fall right back under 3.5.

Due to all the spread tightening, the longer term MBS chart doesn't "feel" as bleak.  Be warned, though, that is IS!  Spread tightening to day is akin to a "sunk cost."  What's done is done, and not only can't we count on that trend continuing, but more likely, we CAN count on it reversing to some extent in the new year.

Going even wider in view, while it is not pleasant that MBS are poised to test their longest unbroken uptrend in 2 years, at least we're still on the happy side of that trend unlike our tsy counterparts. 

Beyond that, maybe this long term view is not entirely unexpected?

In fact, you see the little question mark? (chart from Nov 13th)

Yep... That's where we are right now!  Hmmm.. Maybe it really was the most significant chart of 2009...