Illustrating Today's Pivotal Inflection Point in MBS Benchmarks
Referring to anything today as "pivotal," is a bit of an overstatement considering the lack of data and volume, but from a technical perspective, 10yr yields are definitely telling a story.
Yesterday we noted the breakout of the lower portion of the overall January range in 10yr yields and even before then had indicated that 3.42 would be the last line of defense for that section of the range. Interesting then that the most serious support defending the breakout to take place at 3.42. This also coincided with some of the highest volume of the day. It likely COULD have held, but the ugly TIPS auction pushed yields out of the range, causing a SHIFT of the section of the range in which yields operate.
Simply put, previously it was 3.42 and under, and now bonds must demonstrate some conviction to get back into that garden. When we look at the 3.42 line in a 3 day context, it's a striking example of the extent to which this is viewed as the dividing line.
FNCL 4.5's seem to be equating that resistance to a 102-00 handle. Even so, if volatility is low enough, some of the lenders on the weaker end of the pricing spectrum might have enough to reprice for the better if these levels persist and hold relatively steady.