MBS CLOSE: Lower Coupons Flat While Premiums Rally

The sense of increasing stability that accompanied early afternoon gains stuck it out right through the close to send MBS out the door a tick higher than yesterday at 101-03.  10yr Tsy notes couldn't even manage a similarly "huge" tick movement, ending unchanged by 5pm standards with a yield of 3.61. 

The bulk of the excitement today, other than the 8 ticks between highs and lows in 4.5's that seemed to enjoy some AM volatility, was in the premium coupons where 5.5's and 6.0's rallied to the tune of a quarter point on freshly available details on how Fannie will participate in the 120+ day delinquency buyouts. This had the mortgage world buzzing quite a bit more than treasuries today with plenty of the volume coming up-in-coupon and readjusting various inter-coupon positions.  But as far as production level MBS, again, only a tick separates us from yesterday.

If you caught the Afternoon Commentary, not much changed about the chart above, leaving us to wonder how tomorrow will compare.  Fortunately, there is data on the calendar, and despite numerous aspects of the "Trader's Paradise" in full effect, at least bonds have been doing a better job of taking directional cues from data when available. 

Tomorrow's data has the potential to create some movement too.  3 years ago as I brutally slammed the ADP report month in and month out, I'd have laughed if you told me that I'd one day refer to it as even remotely significant, but here we are.  Increasingly (and largely at it's own "look at me guys!" request) the ADP employment numbers are being groomed as a good and timely proxy for NFP numbers.

So loathe as I am to admit it, any major variance always stands a chance to be seen as a suggestion for some sort of pre-NFP betting pool.  Normal bull/bear logic applies as far as which types of variances might do what.  Then 2 instances of Fed Speak at 9 and 915am, followed by ISM Non-manufactuing Index at 10am.   Lockhart rounds out the trifecta of fed-speak at 1pm, and for those who still won't be satiated with fed policy minutia, the Beige book hits at 2pm.

Bottom line, tomorrow is unlike today in the sense that we actually have some candidates to kick off the directionality.  But from there, unless part of the data (or a headline) is just ridiculously ridiculous, expect the framework of the range to have it's say before breaking down.