MBS OPEN: After Early Data, The Range Is Still The Range

By: Matthew Graham •
  •  MBS currently unchanged at 101-07
  • 10yr Note almost unchanged (tick or two worse) for a yield of 3.63
  • Jobless Claims 469k vs 475k expectation
  • Productivity 6.9% vs 6.3% expectation, Costs -5.9% vs. -4.5% expectation, begs the question: why create jobs?
  • Another question: why can't we come to terms with deflationary risks? 
  • play the range until the range plays you.

Good morning...  Most interesting part of my morning so far is probably today's WSJ Ahead Of The Tape section... When I signed up it was some ridiculously small extra expense to get the paper version as well and it has since become an enjoyable part of an otherwise challenging (I'm on the west coast) morning routine.  It's strange that only 20-30 years after the broad scale diffusion of internet access that there is something nostalgic--rustic even--about thumbing through a newspaper over a cup of coffee.

So it was that a satisfied smile crossed my face this AM--not because I read something funny, but because it was nice to see another in a very limited supply of intelligent counterpoints to "our government is spending us into oblivion" inflammatory pieces of rhetoric.  Not saying I come down firmly on either side of this debate as I too get that "let the chips fall where they may" sentiment when considering our current efforts to climb out of the recession, but a balanced set of considerations is a good thing.  A middle path is a good thing.  And for most of us who aren't clairvoyant, considering both sides of a debate over a topic about which none of us can possibly have any 100% germane experience is a frickin' great thing.

So thanks to Ms. Evans of the WSJ for rounding out my rustic morning nostalgia with some present-day, real-world counterbalance to the hype with "Why Inflation Hawks Should Stand Down," which discusses the failure of what many see as "excessive" stimulus to actually increase M2 money supply.  In short, and as we've touched on for almost a year now, DEFLATION continues to pose as much or more of a threat than INFLATION. 

It was no surprise that the Fed's balance sheet would go off the charts, but such is the challenge of counteracting the most massive amount of wealth destruction in the history of our nation. Again, I'm not voting for or against QE as THE solution, simply saying that whatever solution we strive for as a country, is a better solution when met with measured consideration of pros and cons. 

Zen of MBS soap box speech over...  On to the nitty gritty...

here's how the morning is shaping up on the charts:

Factory Orders and Pending Home Sales will be coming up shortly by the time this hits the site, and as has been the case recently, bonds have done an admirable job of taking morning cues from econ data, even if only to remain confined by the range.  We'd assume that a day before NFP, once again, it would take something bigger than anything we'll likely see today to push bonds out of the wider limits of that range.

That means 10's are challenged more and more into the 3.5's, and MBS the same with each tick higher than 101-04.  If things start going the other direction in a big way, we'll let you know.