MBS RECAP: 1/28/2011

The resistance we'd been eying in the the 3.31's indeed held up as 10yr notes have been forced to tag along with stocks as both move a bit higher. 3.335 is the current mark and the stock lever continues to be tight. FNCL 4.5's are at 102-09 and stably so, allowing any lenders who haven't given it up as much as others ample opportunity to get in the reprice game.

More than 2 hours ago, 10's bottomed at 3.3136, and as stocks rallied and fell back to their lows, 10's have revisited that level on several occasions, but have yet to trade lower. As stocks struggle to get back above 1280 in the S&P, the pressure is back on 10yr yields, leading them away from another test at this resistance level. A failure to break it would put another hourly mark within the recently noted consolidating range, further adding to the sense of "sideways indecision" that must inevitably release it's stored energy. FNCL 4.5's are finally over 102-10, but only at 102-11 at the moment, 8 ticks up on the day.

After recovering from previous lows around 1277, the S&P is back again for another shot at breaking lower. During that recovery, the index crept up to nearly 1283, and this coincided with treasury yields following a similarly "creepy" path. Now, with the recent regression back to the lows, treasuries continue to play follow the leader, lapping up the safe-haven bid while the lapping's good. FNCL 4.5's finally made it up to 102-10 and reprices for the better are the order of the day. We're not seeing any reasons yet to lock until closer to cut-off, should you wish to take advantage of the uptick driven by temporary geo-political events.

Concurrent with the 20 point sell-off in the S&P, treasuries rallied healthily this morning. 10yr yields shot down with a high direct correlation to falling stock prices, until reaching yields just under 3.32. This lines up with a noisy band of resistance that we experienced after the 2yr Auction on the 25th, and considering the very slight consolidation of the range (i.e. it's getting narrower over time), this is roughly in line with the bottom end of the range. MBS have not rallied so healthily by comparison as FNCL 4.5's continue to struggle to get out of the low 102's, currently at 102-08, That doesn't mean that reprices haven't been seen. They have, and additional reprices are possible depending on the lender and on how much time treasuries are able to spend near the low end of the range.

Tens of thousands of Egyptians streamed out of mosques after Friday prayers and took to the streets to demand the resignation of President Hosni Mubarak after 30 years in power. They clashed with thousands of riot police deployed to crush the protest. Reports from on the ground depict ongoing fierce running battles between police and protestors in Cairo, Alexandria, and other cities. TIME's Abigail Hauslohner in Cairo confirms CNN's report that the military has come out to augment the police. She saw one tank at the headquarters of Egypt's ruling party. Meanwhile, Hauslohner, speaking over a landline at dusk and just as a curfew was imposed, says that every minute crackling pops of teargas can be heard and seen, fired by riot police and spiraling in lines of white clouds of smoke, the stench (and the fear of being hit by cannisters) keeping people from crossing the bridges over the Nile. At the 6th of October Bridge, demonstrators attacked a moving police truck with molotov cocktails, it then backed up, running over one person and then police opened fired with live ammunition. MARKET REACTION: A flight to safety into bonds. MBS are hovering near reprice for the better territory but we'll need these levels to hold if lenders are going to recall. 102-08 is our target.