MBS RECAP: 2/2/2011

The 3pm official bond market close has come and gone and 10yr yields made it in under the wire with respect to the horizontal range limit we've been discussing today. With little volume or drama in the past few hours, that's a big victory for day-over-day technical chart watchers. MBS are still at 101-20 in FNCL 4.5's, so no reprices are expected, and perhaps even an "aggressively bad" lender might reprice for the better on the recent stability.

10yr yields continue to operate in the 3.49's, currently about a bp from weakest levels, now at 3.491. FNCL 4.5's have crept up slightly and are currently at 101-20. If you've already seen a reprice for the worse recently, risks are currently minimal that you'll see another.

Still too early to say if this will persist, but the 3.50(ish) horizontal limit in 10yr yields is holding for now. Current levels around 3.491. FNCL 4.5's are up a bit off recent lows at 101-18. Reprices for the worse could still be trickling in however....

10yr yields are back over 3.50 and FNCL 4.5's have fallen to 101-16, reintroducing potential for reprices for the worse.

At 3.475. 10yr yields are continuing to operate in lower territory than the recently tested horizontal range limit just over 3.49. FNCL 4.5's continue to operate over 101-20 (currently at 101-22). But a challenge lies ahead. In order to get back into the diagonally sloped, consolidating range, 10's would need to break under 3.46. That level provided support on several occasions recently, making it a likely resistance target as it is now approached from the other side.

After rapidly rising to just over 3.49, 10yr yields have held under that level for nearly 40 minutes now, but we are by no means seeing a rapid recovery. Judging by volume though, the support looks to be in. The losses left FNCL 4.5's at 101-20, a level they're continuing to hold, albeit tenuously. Bottom line is that short term bleeding has stopped for now. Whether or not it starts again, remains to be seen.

We apologize for the abundance of alerts this morning, but the progressive worsening of the bond market has indeed warranted them. Of particular concern at the moment is the breakout of the consolidating range in 10yr yields. The highest hourly mark in 10yr yields in January is at 3.485 which matches the most recent hourly mark today. So with the break of the sloped support line, that 3.485 is the last line of defense before officially breaking the range, at least as far as January is concerned. Moving back into December, we have even more room up into the mid 3.5's. The break just now is serious business as it's not a meandering, drifty sort of move amidst low volume. Rather, the spike coincided with high volume and FNCL 4.5's took notice, shooting down to 101-21, and now holding 101-22. Although both markets look to be seeking support at current levels, reprices for the worse are highly likely. If you haven't seen them already, they're coming.

Once support broke in benchmark Treasuries, MBS prices fell to new intraday lows and reprices for the worse were reported. These reports have not been broad-based but MBS prices are still sitting near intraday lows so more reprices may be in store.