MBS MID-DAY: Holding Ground Near Best Levels

MBS Pricing Snapshot

It continues to be the case that very little is happening this morning with the exception of the just-completed Fed "Twist" buying just at 11am. MBS and Treasuries have rallied, though we'd note that volume is low enough that some of the improvement could be due to the Fed buying operation (i.e. dealers letting prices drift higher into guaranteed Fed buying).

Even so, the improved levels have held up in the first few minutes following the 'twisty' operation, ostensibly helped along by a stock market that continues to sell off from highs just before the 10am hour. S&P futures are down roughly 7 points since then.

10yr yields are 2.5bps better since last check, currently 1.6335 and Fannie 3.0 MBS are up 4 ticks at 103-08/103-09 which has been a resistance level for the past hour. It's early in the day still, but positive reprices seem increasingly likely if we break higher from here (which looks like it might soon be the case).

A much slower-than-normal overnight session and much slower than normal domestic open leave bond markets in relatively unchanged territory with Fannie 3.0's in line with Friday's close at 103-04 and 10yr yields less than 1bp higher than Friday's 3pm levels at 1.6573. 10's traded in a range of 1.63 to 1.67 overnight, exaggerated by the incredibly low volume.

Contributing to the low volume is a market holiday for Japan as well as summer vacationing among market participants. News was light out of Europe with markets digesting an Italian debt auction reasonably well but looking more forward to tomorrow's economic data offerings.

It's the same story domestically, with nothing on the calendar this morning (except for the usual scheduled Fed "Twist" buying) and the more important economic data hitting tomorrow in the form of Retail Sales. The rest of the day, then, will simply be about observing and assessing any threats to what should be a sideways range.