Technical Breakout in MBS Finding Support After Downgrade News

The most recent alert from MBS Live provides background for the charts that follow:

Potential Reprices For The Better as MBS Break into New Highs 1:49PM

MBS shot well over their highs in recent moments, now up 2 ticks on the day at 102-07 in Fannie 3.5's--this versus a battle with resistance at 102-02+ previously. The best attribution at the moment seems to be an FT story making rounds that the S&P will announce that it's putting Germany, France, The Netherlands, Austria, Finland, and Luxembourg on "creditwatch negative," meaning a 50% change of a downgrade within 90 days. 

10yr yields experience a similar jolt, as did stocks, suggesting that headline causality is likely (as opposed to simply being an issue of tradeflows, technicals, etc...). If MBS prices do anything but turn back and head quickly to 102-03, we could soon see a few of the early-to-act lenders repricing mildly for the better, with more to follow the longer the move is sustained.

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Here's a video clip of where that headline left MBS and 10yr yields, also from the MBS Live Dashboard:

And these are just the moves that have been seen on the speculation that the downgrades occur.  When and if they actually do, at the very least we'd expect these inflection points/pivot points to hold.  Here's a look at a longer term pivot point not pictured above.

The fact that we have shorter term support at 102-03 following the S&P headline and longer term support potential at 101-30 is going to be good enough for a few lenders to reprice for the better this afternoon.  Here's another view of how this headline affected markets as seen in 10yr yields ans stock futures.

And to revisit one of the charts from this morning's commentary, here's how the previously defeated uptrend in S&P prices continues to act as resistance as prices now approach it from the other side--more of an interesting curiosity than anything at the moment, but slightly more bond-friendly than the alternative: