As Benchmarks Demonstrate Stability, MBS Improve Cautiously

As we began the week yesterday, we knew that the domestic economic calendar was among the lightest of the year and to be expecting a relatively quiet week with the exception of periodic European headlines.  We also expected those headlines to crescendo throughout the week, leading up to the more significant statements expected to come out of the EU Summit on Friday.  But instead, we've seen more of a "forte piano."  For the non-musicians in the audience, that would a loud note/chord followed immediately by a quiet section of music. 

Indeed, yesterday's events were much louder than todays, chief among them being the S&P news placing 15 countries on "creditwatch negative."  The trading before and after that news established a range--one that both stocks and longer-dated Treasuries have traded inside through today. 

Even after this triangle is broken (which it must necessarily be, as with all triangles), there's a bigger, broader consolidation of trends occurring in 10yr yields heading into the EU Summit.  Given that the last summit experienced a somewhat similar consolidation and that yields actually broke out BEFORE the summit itself, we're not especially convinced the following technicals HAVE TO hold into Friday, but they do seem to have a decent amount of inertia as rough guideposts.  And remember that part about inertia: "unless/until acted upon by an outside force."  Bottom line the bigger the "outside forces" seen between now and Summit-time, the more possible we'll deviate from this consolidation. Or, we could be reading too much into anthropromorphing the numbers on a page and yields are about to coast casually through the lower triangle line with no particular headline motivation at all!  (In that case, we'd adjust said line to lie horizontally around 2.04 and the game would be back on!)

But trying to, or even thinking about what markets will do in the future is not the point of this discussion.  Rather, it's to call attention to what they've BEEN DOING, and what their tendencies seem to be, absent significant market movers in the meantime.  Since what they've "been doing" is generally consolidating and generally moving in much less volatile fashion than the last approach to a big EU calendar event, we get a strong vote of approval from MBS.  That can be seen in the screen video of the MBS Live Dashboard below:

Although MBS may have a tough time venturing much above 102-06 for today, the general themes should be evident over the past two days (and several days last week as well): as Treasuries merely show some stability, MBS are making gains--enough gains for positive reprices even.  Here's an earlier alert from MBS Live

MBS Ratcheting to Higher Prices on Slow Day. Positive Reprice Potential 11:51AM

On of the "early crowd" lenders just repriced for the better as MBS have slowly but surely trickled uphill to their highs of the day at 102-06 (FN 3.5's). This puts MBS up 4 ticks day-over-day vs 10yr yields being slightly higher vs both 3pm and 5pm marks. On the day however, 10's have been gaining, but not quite as directionally as MBS. Stocks are near their lows, but overall, things are fairly flat. 

MBS appreciate that lack of volatility, and the appreciation is reflected in price gains and perhaps soon, additional lenders' willingness to reprice. It's still a bit early to flat-out EXPECT positive reprices from most lenders, but neither would we fear a reprice for the worse at the moment.