ALERT: Treasury Supply Announced. Benchmark Rates Rise. MBS Prices Fall Fast

Treasury has announced the terms of next week's government fundraiser. As expected, supply sizes were all unchanged from the previous auctions.

A total of $118 billion in TSY notes will be sold. Here is the schedule:

Tuesday: $44 billion 2 year notes
Wednesday:  $42 billion 5 year notes
Thursday: $32 billion 7 year notes

Settlement is March 31

Because the majority of debt supply is concentrated in the front end of the yield curve,  traders have been selling the curve---aka trading the "flattener".

The yield curve can flatten one of two ways: Bear or Bull

A bull flattener is when yields in the long end of the curve are falling faster than yields in the front end of the yield curve. For instance if 10yr TSY note  yields are falling faster than 2yr TSY notes, then the spread between the two TSY coupons would be tightening...or more simply put there are less yield basis points separating the 2yr note and 10yr note.

A bear flattener is when yields in the short end of the yield curve are rising faster than yields in the long end of the yield curve. For instance if the 2yr note yield was rising faster than the 10yr note yield. Although  yields are rising, because yields in the front end are rising faster than yields in the long end, the yield spread between the 2yr and 10yr would be getting smaller, or tightening.

READ HOW THIS AFFECTS MBS VALUATIONS

NOW FOR THE ALERT

Treasury yields are rising across the curve.  2yr note yields have risen 7bps from 0.90% to 0.97% while10s have ticked higher 5bps from 3.62% to 3.67%. This BEAR FLATTENER illustrates how rising yields in the short end can have an indirect effect on the long end.

10s are testing the two day range high yield at the moment. If we take this out, our next target is 3.71%.

Because our guidance giver is weaker, so to are "rate sheet influential" MBS prices. The FN 4.5 has broken 101-02 support and is looking to head lower toward the 101-00 pivot.

If you have been floating in hopes of an extended rates rally, now might be the time to ensure your loans are registered and ready to lock.