Markets Intently Focused on The Clock and The Door

Over the weeks and months of 2011, MBS and Treasuries have had their attention pulled in many different directions, at times paying careful attention to domestic economic data, European events, and monetary policy decisions rendered by the FOMC.   These candidates, in conjunction with tradeflow considerations have been able to account for almost all the market movement this year.  But then there are days like today...

Well, in fact there haven't been many days like today as they only tend to occur in December between Christmas and New Years.  On such occasions volume and participation are so low that those of us left working today are nearly overcome with the soporific droning of sideways markets.  The overwhelming sense is that markets and market participants alike are intently focused on the exit door and the clock counting down the minutes until it can be opened.  In good conscience, we can't really advocate paying any attention to today's market movements.  But just as as few lenders ultimately repriced for the worse late last week despite non-existent volume, we have to at least consider that some lenders might act based purely on changes in MBS prices, without regard for said volume. 

To that end, here's the latest alert from MBS Live (although I assure you, it was written reluctantly...)

MBS Break Into New Highs, Small Potential For Price Improvements  12:06 PM  First thing's first: we need to be really clear about just how dead markets are today. Friday was the slowest trading day of the year and today is shaping up to be perhaps even worse. At the noon hour, less than 120k 10yr futures contracts will have changed hands. The hour from 11am to 12 noon will be lucky to hit 14k. That same hour last Friday saw over 55k contracts. For context, several hours earlier in the month approached 200k contracts. So to say things are dead is an affront to zombies and ghosts everywhere. 

All that having been said, there has been a slightly bullish undertone in bond markets since around 10am that has seen Fannie 3.5's rise from around 101-30 to 102-03. They briefly hit 102-05 but have since fallen back down in the time it's taken to type this update. If this were any other day, the shape of trading is such that we'd soon be expecting some of the characteristically early lenders to offer a small token reprice for the better. 

But given both the fact that it's a somewhat conservative time of year for rate sheets as well as the fact that volume is catastrophically nonexistent, we'd be more comfortable simply saying that we don't see much cause for reprices for the worse at the moment, and there are infinitesimally small chances of equally small reprices for *A* lender or (maybe) two. All in all, more of a "steady as she goes" update for those who might not find themselves diligently glued to MBS prices today.

(note: I'm hestitant to post any charts today because the last thing I'd advocate would be for anyone to read anything into recent movement, so the following 2 charts won't have any commentary or any suggestion as to technical formations except to show the "falling-off-a-cliff" of 10yr volumes over the past few sessions.  There's a distinct possibility this will be the last MBS Commentary post of the day unless something TREMENDOUS transpires in the meantime).