MBS CLOSE: Afternoon Support Holds Through Close

By: Matthew Graham •
  • MBS found support at 100-05 in 4.5's and stayed above that level to end 9 ticks down at 100-07
  • Similarly, the 10yr Note found support as it neared 3.80, closing at 3.791
  • Both flavors of bonds were weaker this AM heading into the auction
  • a "not-especially-weak" 10yr re-opening was weak enough to spark marginal additional losses
  • Declines in price/increases in yield were evenly distributed before and after 1pm.
  • Last auction of the week coming up tomorrow as well as more econ data

Apart from that which has already been discussed, nothing much exciting happened through the close today.  The same technical levels discussed earlier in the day--100-05 in MBS and 3.80 in the 10yr--held firm and provided several good showings of support by the end of the day.

Despite the discussion of the HORIZONTAL level of 3.80, high yields from today and yesterday AM coincide with higher yields into the close today to form a trend channel that suggests a bit of upward pressure on yields in general.  And to whatever extent yields can stay in that range tomorrow, there may be some resistance as the approach that lower trendline which will be decidedly over 3.77 at that point.  The slightly longer view is more informative though as 3.80 reminds us of it's street-cred as a technically significant yield of late.

So with the exception of today and yesterday, we've only seen one other day where yields have been below 3.80 since rising above that level in December.  Enter "Case 1" for a bit of a technical crossroads to be decided by tomorrow's data and 30yr auction.  And if there's a case 1, how about a case 2?  You got it!

Hopefully you picked up on the fact that you're looking at the 100 month moving average on the 30yr bond yield.  And hopefully you're also seeing that bad boy ain't too thrilled about crossing over.  And my final hope is that you see we're more "on top" of the moving average than we've been in, well, a long long time--at least as long as I'm able to pull up with my data in this particular view. 

So if the 10yr yield situation, combined with the fact that tomorrow is the last auction of the cycle didn't suggest crossroads, perhaps this will do the trick!  In fact, crossing over and STAYING over that 100 day MA could be more than just "a bit" of a technical crossroads.  Don't worry... We're not going to find out anything about such epic shifts tomorrow, but it all speaks to uncertainty and fence-sitting.  Hopefully 30's are looking like a good buy at these yields in the context of that moving average...

On top of that, for the first time this week, we can't flat-out ignore the AM econ data. 

  • Retail Sales, Import/Export prices,  and Jobless Claims kick it off at 830 with the triple whammy.  With today's beige book saying more of the same with respect to subdued consumer spending and with earning's season upon us, Retail Sales can't be ignored.  Same story with I/E prices as it paints at least a little color on the oh-so-critical inflation debate.  And claims are claims are claims...  Here either to add fuel to NFP's fire or provide a counterpoint.
  • Business Inventories at 10AM, not top-shelf data, but pretty dang close compared to the first 3 days of the week.
  • 30yr Auction at 1pm
  • Fed Balance sheet and Money supply at 430pm.

All in all, a very action-packed day, especially when the "crossroads" of the 3.80 is considered in the 10yr (minor crossroads) and the moving average/last auction of the cycle is considered in the 30 yr (major, but unable to test, break, and confirm all in one day).  With all the potential energy reserved for tomorrow, floating is a risk that's at the whim of the econ and auction results.  But if you're already in that boat for better or worse, keep an eye on the above-mentioned technical level in MBS (as long as we're still above it by the time you get rates that is!).