MBS RECAP: 1/27/2011

FNCL 4.5's went out the door at 102-03 with 10yr tsy yields in the 3.385 range. Losses were seen at 2:40 but nothing severe. MBS fell to 102-02 and 10yr yields rose to 3.40+. Current, after hours levels are 102-04 and 3.3834 respectively.

3.38 marks the lowest Yield seen in the immediate wake of the FOMC announcement yesterday. Currently 10yr yields are at 3.3853 and have been trending lower in fits and starts since today's auction. FNCL 4.5's continue their directional and slow-paced rally, having added on a few ticks since last check, currently at 102-06. Reprices for the better continue to trickle and if you haven't seen one from a particular lender, chances are better and better that you will.

There's a distinction between "directional" and "big" sadly. FNCL 4.5's have experienced very little volatility as they have steadily gained from their pre-auction lows. In fact, the auction is almost imperceptible on the MBS chart as we it seems to have simply solidified the previous movements. 4.5's are currently at 102-03 and a few reprices for the better have been seen already. 10yr note yields are baking their second push down toward 3.40 after a bit of a post-auction head-fake where they backed up to the pivot point.

After the FOMC announcement yesterday, 10yr notes have met with firm resistance just under 3.42. Yields ground into that level yesterday afternoon and again on several occasions this morning, including in the minute or two immediately preceding the auction. After the 1:01pm results, yield promptly moved lower and are currently at 3.405--not a face-melting rally, but decidedly on the positive side. FNCL 4.5's moved to their highest levels of the day at 102-01. Even if current levels are merely MAINTAINED, reprices for the better will be possible shortly. But that is not a foregone conclusion as a good deal of indecision pervades both sides of the bond market with no definitive moves in one direction or another since the initial few minutes after the results. We're still in "wait and see" mode.

U.S. SELLS $29 BLN 7-YEAR NOTES AT HIGH YIELD 2.744 PCT, AWARDS 95.59 PCT OF BIDS AT HIGH *** U.S. 7-YEAR NOTES BID-TO-COVER RATIO 2.85, NON-COMP BIDS $17.20 MLN *** US TREASURY - PRIMARY DEALERS TAKE $12.23 BLN OF 7-YEAR NOTES SALE, INDIRECT $15.11 BLN

Lower highs in 10yr yields are forming a triangle sort of pattern into what looks like the firmest resistance to further gains so far this morning at 3.42. MBS are back up at 101-30, indeed making chances of reprices for the worse quite slim. Again, it seems like the 7yr auction will be the deciding factor in moving out of this triangle.

Stocks have peeled away from there first and most serious attempt at 1300 S&P but 10yr notes remain reluctant to move below 3.44 pivot from this morning. FNCL 4.5's have lost a few more ticks and sit at 101-25. It's conceivable that an early pricer or two might reprice for the worse, but for now it seems that we're waiting on post-auction trading momentum.

Rate sheet influential MBS coupons just dropped from 101-28 to 101-24 in one swift move. This price decline has broken 5-week range support. Lenders who priced before 10AM eastern are likely to reprice for the worse.

RTRS-DR HORTON EXEC SAYS WILL NOT BE ABLE TO PASS ON HIGHER LUMBER COSTS TO CUSTOMERS, NEGOTIATING WITH VENDORS

The purchase or sale of Treasury securities on an outright basis adds or drains reserves available in the banking system. Such transactions are arranged on a routine basis to offset other changes in the Federal Reserve’s balance sheet in conjunction with efforts to maintain conditions in the market for reserves consistent with the federal funds target rate set by the Federal Open Market Committee (FOMC).