MBS And Treasuries Stay Strong Through Close

By: Matthew Graham •
  • Bond Bulls In Control All Day Long
  • Fannie 4.5's rise 7 ticks to 101-03
  • 10yr note yield finally meets resistance at 3.65
  • Stocks end at best levels since Q308
  • Stocks face major test tomorrow to hold these levels

In case you missed it, the news of the day was the FOMC statement.  Just want us to pick out and discuss the juicy parts for you?  Here: AQ RECAPS FOMC MINUTES

Lock/Float already discussed in previous post here: MG DISCUSSES LOCK CONSIDERATIONS

Other big news of the day here: Dodd's Releases Reform Package

Need more discussion? Good Recap and More Lock/Float

 

The MBS and Treasury bullet points at the top of the page can all be seen in today's chart.  The "bulls in control" statement references that there was no major episode of losses (more evident in treasuries).  AQ also points out a couple nice technical formations which are highlighted in red.  Both are ascending triangles where the flat line is "what we want to get past" and the sloped line is the trend we've been holding as we approach the resistance level.  Both were broken.  Both rallied.  Nice examples of triangles in action...

That teal line (incidentally we could draw another intraday triangle there) marked the most heavily tested support level in tsy's--3.685--which we might want to remember should we find ourselves selling off a bit tomorrow.  As far as "selling off a bit" is concerned, there are reasons to hope rates could get even better tomorrow.  But just be wary of recent behavior in MBS.  They haven't been themselves lately, in the sense that until now, they've "always" been tightening vs. treasuries, but have recently widened both during rallies and sell-offs. 

This is not so much a surprise (widening is expected with Fed Exit), but it is something to be noted as decidedly "different than it has been."  Could these widening bouts be the first signs of expected widening in a world without Fed support?  Tough to say, but the important point is that at least as far as the past several sessions have been concerned, it's getting less safe to plan on MBS being in lock-step with treasuries at the moment.  Does that mean a treasury rally won't bring an MBS rally?  Well... It did today!  Just not quite to the same extent.  It's just a modicum of caution to sprinkle in with what is probably more of a "floaty" night, though less so than last night.