MBS Continue Holding Gains. Treasuries Continue Outperformance

Very little has changed from this morning.  There haven't been any significant market moving events for MBS.  The most noticeable uptick in bond market volume predictably surrounded the Fed's scheduled buying that wrapped up at 11am, but there were no discernible swings in yields or MBS prices to match. Ever since the domestic stock market open, stocks have been moving directionally higher while bond markets remain essentially flat (totally flat in  MBS and marginally improved in 10yr Yields).

(source: MBS Live Dashboard)

Despite the slight underperformance from MBS, it's a net positive that today's lows rest on Friday's highs.  That said, it remains unclear as to whether or not this will turn out to look like "a bounce higher off a longer-term pivot point," or "a grind against ongoing resistance at a longer-term pivot point."  The chart below illustrates this indecision.  Note how prices have been bouncing AROUND the trendline at 103-19 in Fannie 3.5's.

The eventual fate of MBS may depend, as it often does, on the broader technical signals from benchmark Treasuries.  To that end, we can take a look at the generally converging long term trends in 10yr yields.  We can appreciate the eye-strain issues caused by the following chart, but if you focus solely on the upper red and lower teal lines for a moment, you'll see the long term consolidation/convergence.  10's could be doing several things here though, including:

- bouncing higher off the lower teal line to stay in the upward trend channel defined by the two teal lines

- recovering from a "test" to break out of the long term downtrend defined by the two red lines

- pivoting lower off the 50% retracement level at 1.945

- moving to test lows from earlier in the month around 1.90

Or they could be doing none of the above.  Whatever the case, if the 1.945 pivot continues to hold supportive into the rest of the week or if the "red" trend channel is general winning out over "teal," these things would probably be MBS-positive in the sense that they could allow further exploration over 101-19 for Fannie 3.5's, and hopefully in a more definitive fashion that today's currently indecisive stance.