MBS Reach Yesterday's Highs Following (And In Spite Of) Morning Data

Although the important economic releases this morning were either in-line with expectations or better (Home Sales missed expectations, but it's not an "important economic release" as far as being a market-mover), bond markets have bucked the historical tendency toward weakness in such scenarios.  Reason being: this scenario happens to include events from the previous day still exerting plenty of influence--in this case, the FOMC Announcement and surrounding events (Forecasts, Press Conference, and even the strong 5yr auction to a lesser extent).  The bottom line though is the same as that which was discussed this morning:

As much data as there is on tap, Wednesday's unprecedented low-rates through late-2014 forecast from the FOMC trumps all.  It's chief argument from a market reaction standpoint was to suggest that bond markets are either going sideways or bouncing bullishly.  Unless Thursday and Friday's data and events are exceptional, they should serve only to moderately clarify the picture already painted by the FOMC announcement.  In other words, the week's remaining events will essentially voice their opinions regarding "sideways" or "improving" for the bond markets, but it would take a coordinated effort to undo the big supportive bounce at 2.10% seen in 10yr yields.

So far, the above assertion seems to not even have been dismissive enough regarding morning economic data or perhaps, the level of bullish stability implied/created by yesterday's events.  After threatening a break of 2.10% in terms of 10yr yields only a few days ago, we now find ourselves bouncing lower off 1.98 this morning and sort of honing in on a 1.95 technical level.  MBS meanwhile are back at their highs of the week/month/year--the highest levels since September really...  Take a look at the screen clip from MBS Live to see both of these phenomena

In the longer run, beyond constituting recent multi-month price highs, today's MBS prices go a long way toward reestablishing the previous uptrend in Fannie 3.5's as can be seen in the following chart. 

Other markets are also showing the effects of the FOMC festivities as well as the extent to which money was sidelined in anticipation.  Case in point, both stocks and bonds are much-improved from yesterday's pre-FOMC levels.  Moderate stock rallies such as the one seen here, rarely coincide with such aggressive bond market rallies.

Take a step back, however, and you can see that yesterday and today really haven't been all that big a deal for stocks--barely perceptible even.  10yr yields, on the other hand, recovered better than half of their entire range over the past 3 months.

Next item of note is, well... the 7 year Note auction (see what I did there?).  Although 7's aren't quite as popular from a volume perspective as yesterday's 5 yr notes, there's something to be said for being the last act on stage.  Even if you don't care for it, you might stand up and cheer anyway for previous acts in the show (for which you've had to hold some applause until all the acts could finish).  We're not saying that there's a pent up rally waiting to happen until 7's are successfully auctioned, simply that the auction results themselves might not have to flat or even strong in order for bond markets to hold their ground.