MBS RECAP: Sluggish Session

Not only was today quiet in terms of volume, but there wasn't much directionality in the charts. Ranges were narrow and only got more so throughout the day. We have the three "usual suspects" lying in wait though. The combination of economic data, Fed-Speak, and a round of Treasury Auctions should be enough to shake things up a bit. In fact, each of the next 3 days contains all three of those participants, with Friday containing only econ. Tomorrow kicks off with some early 730am data in the form of the NFIB Small Business Optimism Index. In and of itself, it's not much of a market mover, but it can add momentum if combined with similarly bearish or bullish ingredients. Import Prices hit at 830am followed by Wholesale Trade at 10am. That'll do it for econ data. Fed Speakers include Duke at 930am and Lacker at 1245pm. Finally, 1pm brings what has the potential to be the biggest mover of the day: the 3yr TSY auction. For a look at the rest of the week, check out the link below.

FNCL 4.5's remain 5 ticks up on the day at 103-20. Reprices for the better have been reported, but it's not a widespread phenomenon yet. In moments, the 10yr note will mark it's lowest closing yields of the year at 3.14. With today's volume roughly half that of Friday, it seems that more of this week's volume and momentum is waiting on the auction cycle and another round of economic data.

WASHINGTON, May 9 (Reuters) - With Wall Street anxious to hear what he has to say, U.S. House of Representatives Speaker John Boehner will offer more details in a New York speech on Monday night about his strategy in the battle over raising the $14.3 trillion debt limit, an aide said. Separately, Democratic Senator Charles Schumer called on Boehner to guarantee a timely increase in the debt limit to ease investors' concerns and avoid government default, and suggested that a deal is needed by mid-July. Boehner's speech at the Economic Club of New York will be closely watched in financial markets, as Treasury Secretary Timothy Geithner has warned of economic catastrophe if the federal government's borrowing authority is not increased. If the United States defaulted on its obligations -- something that's never happened-- that would roil markets worldwide. Boehner's aide declined to release any new details that the speaker planned to disclose, but said Boehner would reiterate that Republicans are demanding trillions of dollars in U.S. spending cuts in exchange for an increase in the congressionally-set cap on U.S. borrowing. On Tuesday, Vice President Joe Biden will hold the second meeting of his congressional group on deficit reduction that has become a key force in the search for common ground. President Barack Obama, anxious to get a deal, will meet on Wednesday with Senate Democrats and on Thursday with Senate Republicans, the White House said.

Both MBS and TSYs just touched their best levels of the day. At 103-20, these are actually highest MBS prices since 12/07 and at 5 ticks improved vs Friday's close (combined with loan pricing being 4 bps worse this morning on average) we'd say we're entering a zone where reprices are just about due. 10yr notes are at an eye-watering 3.138, though recent moves have come in relatively lower volume than this morning and Friday.

The stock lever that had previously been connected is being rather violently broken at the moment as S&Ps have gone mildly ballistic in relation to their earlier range. They're now at 1348.31. Despite that, 10yr notes remain in a tight range around 3.15. Accounts that didn't get on board with short-covering on Friday are doing so this morning (signs of uncertainty about shifting economic sentiments). That extra bid-side demand--primarily from hedge-funds and other "fast money" is helping keep yields low currently. MBS version of the line in the sand is at 103-16+ in FNCL 4.5's, a level they haven't broken since breaking it just after 10am, despite numerous bounces. The more convincingly MBS hold that ground, the better as loan pricing is 4bps worse on average across the "big 5" lenders. 4.5's are currently 2 ticks up on the day at 103-17.

Earlier, we speculated that a positive or negative reading on stocks on the day could influence 10yr yields being able to break lower than 3.15. This is basically what happened as the S&P ticked down into the 1338's so too did 10yr yields briefly test lower than 3.14, but as stocks bounced, so too have bonds. S&P's are back into just-barely-green territory at 1341.47 and 10yr notes are back at 3.151. FNCL 4.5 MBS peeled a few ticks off their 103-19 high back to 103-17, 2 ticks higher than Friday's close. Current trading ranges don't suggest any especially high chances of reprices for the better or worse, so we'd continue to watch and wait, vigilant against any positive news regarding Greek debt drama and the possible correction in domestic markets that could ensue.