MBS RECAP: Selling Subsides After Obama

As far as scheduled economic data tomorrow is another light one, with only MBA Mortgage Apps at 7am and Existing Home Sales at 10am. But the day is not completely without hope of digesting a market moving event or two. For instance, it will be the first of two days of talks in Europe among senior officials as to how best proceed with the bailout of Greece. Britains parliament will also be meeting in an emergency session focusing on more Murdoch drama. And while this might not be the best candidate for a domestic bond-market mover, it could at least provide entertainment if things are slow and boring.

Both MBS and Treasuries have been in somewhat of a sideways slide since the 11th (more sideways in Treasuries, but a slight decline in MBS). Both markets have seen their fair share of repeat bounces whenever they've approached the high or low side of the generally sideways ranges. And now today, while bonds were able to extend their rally following Obamas brief talk at 130pm, neither has been able to extend those gains past previous price highs (yield lows). 10 yr yields in fact bounced at 2.878, putting today's bounce in the same league as the best performances of late, which are scattered in the 2.87's. Similarly, MBS touched the top end of their recent trend channel, which was approximately 100-29 in Fannie 4.0's. They've since backed off a bit to 100-26, 7 ticks up on the day. Still, that's plenty of strength for widespread reprices for the better. If you haven't seen one, you should (barring any immediate turn around).

To be clear, Treasuries are indeed rallying after Obama spoke with a slightly more calm and optimistic tone on the ongoing debt debate and potential courses of action. MBS are not as excited as Treasuries, but they're not losing ground either. The US government debt is understandably responding more to news that concerns it. MBS had been outperforming this morning. Treasuries are clearly outperforming now. 10's are down to 2.895 and Fannie 4.0's are just under 100-26, 7/32nds up day over day. Neither looks to be stampeding through those levels at the moment. Just a slight positive initial response.

(Reuters) - White House and congressional negotiators worked on Tuesday on a plan to keep the United States from a catastrophic default, but one that is unlikely to save America's gold-plated credit rating. Two weeks before their final deadline, President Barack Obama and top lawmakers face more pressure for a debt deal amid a growing sense that a last-ditch plan taking shape in Congress may be the only workable solution politically. Talks on a comprehensive deficit reduction deal that would clear the way for Congress to raise the debt ceiling by Aug. 2 have stalled over tax increases. Attention has now shifted to a "backup" plan proposed by Senate Republican leader Mitch McConnell. The behind-the-scenes talks on McConnell's plan came as Republicans in Congress pushed forward on a vote on Tuesday on a deficit-cutting measure seen as mostly symbolic but a stark reminder of their ideological divide with Obama's Democrats. (By Matt Spetalnick and Andy Sullivan)

Shortly after 1130, bond yields and stock prices fell off somewhat sharply relative to the sideways movement the preceded it earlier in the hour. Though this isn't a major move in the grand scheme of things today, MBS are taking the ground-holding of 2.95 in 10yr Treasuries as an opportunity to launch a campaign for a bit of tightening. 4.0 MBS are up 3 ticks on the day while 10yr prices are down 2 ticks. That brings MBS to their best levels of the day at 100-22 and makes it possible that we'll see additional reprices for the better beyond the one that has already been reported (algorithmic reprice model... Lenders with human input might not reprice so quickly).

(Reuters) - The International Monetary Fund warned on Tuesday Europe's debt crisis could have a major global impact if not tackled quickly and it urged euro zone leaders to beef up the region's rescue fund and recapitalise its banks. "It would be very costly not just for the euro zone but for the global economy to delay tackling the sovereign crisis," Luc Everaert, Division Chief for Euro Area Policies in the IMF's European Department, told a conference call. In a staff report, the Fund recommended that the European Financial Stability Facility (EFSF) should be increased in size and be allowed to purchase debt on the secondary market, as a means of easing the threat of contagion from euro-zone peripheral states. "European banks need to be strengthened throughout the euro-zone area, with a very strong follow up to the stress tests that just came out and with a preference for private sector solutions," Everaert said. The Fund also recommended the euro zone needed to adopt much stronger economic governance. "We need more Europe not less," Everaert said. (Reporting by Daniel Flynn; Editing by Leigh Thomas)