The Day Ahead: Snowstorm Adds Uncertainty as MBS Roll

Friday was probably already going to be a wild card, but it's made even more so due to the big, nasty snowstorm set to hit the east coast this morning.  With major wind gusts and heavy snow accumulations expected in New York, residents are already in somewhat of an orderly panic mode with long lines at gas stations and bare shelves in some supermarkets.  It's a good time to remember that a lot of what happens day to day in financial markets is the result of actual people being at work.  Especially after Sandy, residents are on guard against the weather, and it could keep more than a few market participants out of the game.  

It's also good to remember that MBS markets have fewer participants than Treasuries and stocks.  When something happens to decrease overall participation, MBS prices are more susceptible to volatility.  All things being equal, the session is shaping up as something to be endured rather than eagerly traded.  If Treasuries manage to hold their ground, then MBS should be somewhere close to intermediate support.  Here's where prices would be if we'd rolled on Thursday afternoon (the actual roll, where February MBS are settled and March take over as the new "front month" is after the close tonight).

In terms of broader bond markets, there's an unfortunate amount of recent context for weaker levels.  With 10yr Treasuries ending Thursday's session around 1.96, we have the major short term resistance pivot at 1.953 and the longer term inflection point (the one we didn't break on NFP day) at 1.926.  There's plenty of room to run between 1.96 and 2.05 in the event of weakness whereas pressing into lower yield levels gets challenging quickly without the appearance of major motivation.   With potentially thin trading conditions and the less-than-super-important Trade Balance and Wholesale Inventories data sets, finding major motivation on Friday could be a challenge.