MBS AFTERNOON: Footing Found Near Top of Status Quo Range

What a letdown.

After a successful long bond auction and positive knee jerk price reaction, the rates market has failed to extend relief rally progress into a new range. Whomp whoooomp.....I have yet to see any of the major lenders pull the trigger on reprices in either direction. That leaves both mortgage rates and "rate sheet influential" MBS prices at status quo levels....

On the bright side...at least we are near the high side of the "status quo range". (blah blah blah its still a letdown!)

Perhaps we overlooked the effect of a long weekend ahead? Next monday is a market holiday and although trading volume was strong today....it was by no means impressive for an auction day when trading volume usually spikes. There is always the outside chance that an overheated CPI print pushes yields in the long end of the curve higher.  I am thinking out loud here, trying to rationalize the strength of range resistance.

Although it is possible that the 15 basis point rally we've seen in 10s over the past week was all the relief rally we're gonna get...I am still playing the market as if lower rates were looming in the near future*.

*Please don't confuse my short term optimism with our outlook for higher rates deeper into Q1 2010.

 PS. If we see any reason to doubt the short term bullish bond market bias. We will be ALERTING.