MBS Hit Two Month Highs as Confidence Evaporates Ahead of EU Summit

MBS prices rose to their highest levels in over 2 months today as stocks and Treasury yields fall to their lowest levels of the month.  Fannie 3.5 MBS were already having a pretty tough month back in October when the last iteration of an EU Summit captured the market's attention.  As 10yr yields rose from historic lows in the 1.7's, MBS prices plummeted from 103-09 to 100-20.  They spent most of the month languishing sideways just above those levels and the impending EU summit near the end of the month was no help.  In fact, that was the catalyst for 10yr yields brief venture up to 2.40. 

This time around, things are a bit different.  Perhaps markets are firmly skeptical due to the rapid unwinding of optimism after the last summit.  After all, MBS rose from 100-13 to 102-13 in just three days.  102-13 has more or less been the highest Fannie 3.5 price seen since then, until the last 2 days.  We might point out that the January coupons that are soon to be in front of the class have NOT been any higher.  That would allow us to say that both MBS and Treasuries have returned EXACTLY to the 11/1/11 levels they hit as the October Summit swings were unwound.  Interesting?  Intentional?  Who knows...  Whatever the case, trading levels are clearly conveying a high degree of skepticism heading into tomorrow's glut of European wires.  Even the uber-resilient stock market has done its best to get back down to 11/1 levels:

Here's a look at hourly candlesticks of 10yr yields.  (note: Every now and then, something "cool" happens when I click through the various tabs of charts that I've worked up in the past.  Whatever trendlines I draw in exactly the same place while continuing to chart new trading levels, even if I change the interval from daily to hourly to minute-by-minute.  When I pulled up this 10yr chart, the red lines, which I originally drew on a different time interval, today looked super slick with the test of the upper line, and the nice little break of the lower line.  1.98 was probably the most logical place this breakout could go...)

On an intraday basis, we can see Treasury futures volume pick up into this breakout, but it's important to keep in mind that overall volume is still low in the big picture.  It MIGHT BARELY hit 1mil contracts today.  It was above 1.5mil on all the bigger days at the end of Oct and beginning of Nov.

Finally, an intraday look at MBS with some reprice guidelines being overlaid in real time earlier today on the MBS Live Dashboard.