MBS MORNING: Rally Moderates Ahead Of Auction and FOMC

With weaker than expected data this AM from MBA Applications and New Home Sales, bonds have been able to extend yesterday's rally as we move closer to the noon hour.  But as you might expect ahead of the $42 bln 5yr note auction and the FOMC statement that follows just over an hour later, neither MBS nor treasuries have been too eager to move outside yesterday's trading range.  Despite a few spikes in MBS current prices now sit slightly lower than yesterday's highs and tsy yields are 3bps higher now than yesterday's lows.

These are still fine levels overall as the 101-01 price in MBS is 2 ticks better on the day and 3.60 in tsys is 2bps lower.  With these gains on the screens and assuming pricing on the rate sheet you're looking at is as good or better than yesterday, it's time to grab that suit of armor from the lobby.  That's right, it's time for DEFENSE!

There is no call to action here YET!  But it is DEFINITELY time to prepare.  At 1pm auction results are the first wave of data that could help or hurt, and then 2:15 be the general time the Fed statement is released.  Same story there....  Could help or hurt.   I love to see what we've seen in stocks on the recent daily charts, and the rally in bonds is music to all our ears.  But we've been creeping into that danger zone where retracement is at risk purely for technical reasons.  So if the fundamental data confirms it with a weak auction or poorly received FOMC statement, (or even both?!), it's going to be time to lock in some of the gains we've enjoyed in recent weeks.

Stay tuned for auction results at 1pm.