MBS Close at Lowest Prices Of The Day Despite Treasury Rally

By: Matthew Graham •
  • Fed says "so long, MBS!"
  • For primarily this, and other reasons, MBS are pouting today
  • Lenders scatter reprices for the worse throughout the day OUR WARNING
  • "pouting" = cutting edge technical term for being in the red while treasuries are in the Green
  • 4.5's are down 2 ticks on the day at 100-06
  • 10yr Treasury Note Yield about 2.5bps lower to 3.835
  • Stocks tried 1174 again in S&P and failed (again... we're losing count...)

I discussed a few technical levels last night.  Specifically, that 100-16, 100-10, and 100-07 were good levels to keep an eye on.  That call turned out pretty good today as those have been our noticeable turning points throughout the day.  If you got some improved rates this AM, the 100-16 was a good lock signal for those locking before NFP.  And then again when 100-10 started heading south. 

Treasuries weren't bogged down by various MBS woes, and have been narrowing in to this 3.835 level seen moments ago.  Additionally, the 3.85 level that had previously thwarted all rally attempts was broken early today and true to good technical form, held up as support when yields backed up around 11am.  Moderate green days in treasuries coinciding with moderate red days in MBS may be a more frequent occurrence in the days and weeks to come, so everyone shut off those bond tickers and focus on MBS.

Stocks are so boring they don't even merit a chart--obviously chomping at the bit for an excuse to bust out of their 1174 cage (S&P).  With 150k census jobs and some uncertainty as to what the absence of snowstorms will add back, the headline would have to be pretty bullish to suggest that, so we might not abandon all hope yet.  Be aware though, that a lousy NFP that leads to a big treasury rally WILL NOT see MBS rally nearly as much as their benchmark big brothers. 

In regard to the Fed's exit from the MBS Purchase Program. As expected, yield spreads did widen today as traders prepared for a less-liquid mortgage market. AQ went into detail explaining the underlying fundamentals of this yield spread widening. READ IT