MBS AFTERNOON: Supportive Levels Tested And Firm For Now

We had been looking for support around the previous lows of the day around 100-09 to 100-10.  The market moved briefly lower after that, but that test failed and the 100-10 level in MBS looks as if it will hold up for today.  Meanwhile, the 3.80 level discussed earlier that the treasury counterpart to the MBS trade at 100-10 also allowed yields a brief foray higher only to also fail and move decidedly lower as we head into the close.

Indeed, the range trade is excessively reliable once markets have their opportunity to show their cards for the day...  And with that, risk of further reprices for the worse are all but vanished (at least among lenders that reprice with market movements as opposed to only once a day).  The question is and always will be what to read into that about tomorrow.

The only two events on the calendar are Fed's Dudley and CPI.  In the wake of worse than expected inflation data today, it's a distinct possibility that a weaker than expected CPI became somewhat baked-in to today's levels.  Should CPI hold steady or beat expectations, we could catch a correction to the downtrend we've been in for the past two days.  Prices are getting to low enough points to warrant that, and yields creeping to high enough points.  The risk is that plenty of room remains to weaken further in the big picture, so the coin-toss remains in where you have your chips on the CPI data.