MBS MID-DAY: Even Narrower Trading Range Amid Lack of Data

MBS Pricing Snapshot

Miracle Max would classify bond markets today as “mostly dead.” Rather than a well-staffed battle between buyers and sellers, we’re instead seeing things drift apathetically sideways, slightly influenced here and there by whatever motivation can be found.

If we had to pick one overriding tidbit of support (read: keeping 10yr yields under 2%), it would probably be tomorrow's Spanish debt auction. That's a sign of the times when Jobless Claims, Philly Fed Index, and Existing Home sales are all seen as relatively inconsequential compared to a scheduled debt auction in the EU Periphery. But then again, the EU Periphery is the main reason yields are as low as they are in the first place.

If we had to pick a tidbit of resistance (read: keeping yields from breaking much lower than the double-tiered floor at mid 1.97's and 1.95, it would probably be a slightly more diverse answer, but chiefly, would include "the range (hesitant to take things too far in either direction ahead of next week's FOMC), and the absence of meaningful domestic data suggesting that bond markets pay more attention than usual to equities markets.

We can appreciate not only that the previous sentence was incredibly long, but also that this alert/update focuses mainly on Treasuries, yet appears on an MBS-website. Sorry if that causes confusion, but MBS are even more of a victim of the "watching and waiting" vibes out there... Whereas Treasuries have little to go on, and must look elsewhere for guidance, MBS are merely another degree separated from the same phenomenon, with originator-created supply causing slight adjustments in spread to Treasuries.

Thus far, MBS are underperforming slightly... down to 103-10 support so far this morning, 1 tick worse than last night. 10yr yields are just over 1bp better than last night at 1.9823. We doubt MBS will make a meaningful push below 103-10 unless 10's making a meaningful push toward the 2% pivot.