MBS Fighting to Hold Their Ground on a Volatile Morning

This morning's alert from MBS Live: 

EU Headlines Pull MBS Lower. Other Factors Add to Hectic Morning9:25 AM

Confirming the notion that EU headlines are the main driver of domestic markets right now, the two biggest market movers this morning have been the announcement regarding Papandreou's resignation (which is still a bit up in the air it seems) and to a greater extent, a surprise rate cut by the European Central Bank (ECB). The resignation story is somewhat diluted as it was partly expected and it's veracity seemed to slowly filter in throughout the morning. The ECB cut however, clearly coincided with the biggest volume surge of the morning, making our 830am domestic economic data look downright silly by comparison. 

10yr yields are fighting to hold onto support around 2.06-2.07 and Fannie 3.5's have thus far seen similar support in the high 101-20's, currently 101-27, which is 13 ticks lower than yesterday's 5pm levels. 

There's a bit more domestic econ data ahead with Factory Orders and ISM Non-Manu at 10am, but again, it's all about Europe. Trends this morning are troublesome for bond markets so far. Next major support for 10yr yields is around 2.11. Fannie 3.5's have technically supportive rungs on the ladder around current levels, then again in the low 101-20s, then again at 101-13 (if things get really ugly). Rate sheets should be markedly worse and possibly delayed if negative momentum persists.

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Today is a bit tricky because there were 4 domestic economic reports and market movements got reasonably spiky shortly before and after them, especially the 10am data.  But the chart below that overlays 10yr yields and S&P futures with volume in 10yr futures along the bottom shows that the recent spikes did not occur right on the 10am mark as they normally would on important economic data.  The actual spikes line up better with various headlines from Draghi's ECB press conference.

Here's a shot of some of the action in the MBS Live Dashboard and a look at the spiky MBS trading this AM.

But in a broader context, even if the weakest levels hold as support, here's the longer-term shift that's going on in MBS (at least for now!  We live moment to moment these days)

Yes, 101-26 looks supportive, but 102-13 also looks like stalwart resistance.  The best glimpse of that resistance is actually in the 3 day stonewall of 10yr yields at 1.98.  So far, technical factors are saying it just ain't happenin':

But breaking past 1.98 in 10yr yields is actually of little consequence to MBS IF some supportive levels hold.  Going sideways in the 10yr between 2.15 and 2.0 would ultimately be big benefit for MBS.  We're just looking for some stability from benchmarks.  MBS might weaken at first if 10's moved quickly to 2.11 or 2.15, but in the longer run, rate sheets could be just as good as they are right now even if 10yr yields were 20 bps higher.  It's all about how stability. 

There's no more data today and tomorrow's economic data might actually move markets as it's the Employment Situation Report.