MBS MORNING: Choppy Price Action. Stock Lever Disconnected For Now....

Punxsutawney Phil saw his shadow this morning. Six more weeks of winter.

As Rob pointed out already, Phil, like other weatherman is not the most accurate long term forecaster. Phil's predictions are right about 40% of the time according to the National Climatic Data Center. National Geographic has a legit story on Phil. READ IT HERE

One more quote from this hugely underrated film...

"It's the same thing your whole life: Clean up your room. Stand up straight. Pick up your feet. Take it like a man. Be nice to your sister. Don't mix beer and wine, ever. Oh yeah: Don't drive on the railroad track."

DON'T DRIVE ANGRY. DON'T DRIVE ANGRY PHIL!!!

MBS are angry this morning, well not really but it looks like it on the charts. "Rate sheet influential" MBS prices have CHOPPED CHOPPED CHOPPED around their recent range with seemingly no rhyme or reason besides profit taking (no supply) and automatic adjustments to offer prices based on quantitative models and the gyrations of the yield curve (follow the leader). MBS trading volume is above the 30 day average though, with that in mind I would point toward fast money day traders as the culprit behind chopatility.  

The FN 4.0 is -0-01 at 97-28 yielding 4.206% and the FN 4.5 is trading flat, +0-00 at 100-30 yielding 4.408%. The secondary market current coupon yield is 4.378%. The CC yield is 73bps over the 10yr TSY note yield and 60bps over the 10yr swap rate. Notice the 100-28 pivot point has held firm today.....

Here's how it looks in the cash market for the 3.375 coupon bearing 10 year Treasury note. The sideways grind to the right continues ahead of NFP on Friday.

In the chart below, 10 yr TSY futures prices are compared to S&P futures prices. Usually as stock prices rise, TSY prices fall. This relationship was obvious yesterday...not so much today. Even as stocks have bounced higher, Treasury prices are holding gains.

Looking ahead, if stocks keep on rallying, this disconnect may not continue and interest rates may rise, which would be bad for MBS pricing. Just remember, if the FN 4.5 breaks 100-20, lenders will reprice for the worse. If you are floating day to day, keep a watchful eye on the stock lever.