MBS MID-DAY: Consolidating Inside Yesterday's Range
By:
Matthew Graham
•
MBS Live: MBS Morning Market Summary
Trading ranges like today's are occasionally referred to as "inside days" due to the highs and lows resting "inside" yesterday's highs and lows. Inside days always connote consolidation and balance between bulls and bears, but the implications of that consolidation can differ depending on several factors. In the case of this lightly traded afternoon, we're likely witnessing the least exciting and least meaningful variation, which is simply an "orderly fizzle" into the weekend. It's as if fuel supply that had been powering markets is slowly shut off. If we'd been exclusively rallying into yesterday, an inside day would offer a clearer suggestion of resistance to the rally. Indeed, "resistance" has been the theme of the week, but markets certainly haven't been quick to bounce back to weaker levels. So we're left with the impression that the sideways grind is waiting for a more pronounced break which could now go in either direction. We're not likely to get any early indication of such a break today, but if we do, it would need to bring more volume into the market and take 10yr levels outside a 1.73 - 1.673 range and/or Fannie 3.0s outside a 104-02 - 104-10 range. For the past two hours, we've been between 104-05 and 104-07.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
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Morning Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribers this morning.
9:31AM :
Holding Slightly Weaker Than Unchanged After Overnight Weakness
Treasuries were treated to an uncommon level of volatility early in the Asian session overnight. 10yr yields didn't go crazy, by any means, but the quick 2bp rise to 1.71 that came just 2 hours into the session is more typical of the European hours. The mini-spike is being chalked up to comments from Japan Finance Minister Taro Aso, who said that Japan's recent policy shift was unopposed in the G20 meeting (read more). Ostensibly, this helped a risk-on move and a back up in the Yen, damaging Treasuries slightly in the process. We see the damage in Treasuries, but it looks more currency-driven than "risk-on."
After chopping around 1 1.713 to 1.70 range during most of the European session, early domestic action brought better buying just after 6am, led by two small-ish block trades in 10's and 30's (what are "block trades?"). Essentially, the onset of the pre-market domestic trading helped confirm at least a short term ceiling in yields, though it didn't cause any major rally.
10's and MBS hit 8am at slightly weaker levels, but caught a bid after Germany's Schaeuble said he would be welcome to the idea of the ECB reducing liquidity. That accounted for the drop from 1.707 to 1.693 early in the session, but 10's met reasonably strong resistance there, currently back up to 1.70. For MBS the analogous resistance level is at the familiar 104-08 level, which along with 104-07 has come into play frequently this week.
There are no scheduled reports or significant events on the calendar today and volume has been on the light side thus far, suggesting markets may simply try to make it to the weekend with little fanfare. The short term bullish opportunity that we'll be keeping an eye on at the moment is a potential pivot around 1.70 with overnight levels. This could probably be accomplished even if we move up to 1.704. If that's broken, we'd turn to overnight highs as the next test (1.713).
After chopping around 1 1.713 to 1.70 range during most of the European session, early domestic action brought better buying just after 6am, led by two small-ish block trades in 10's and 30's (what are "block trades?"). Essentially, the onset of the pre-market domestic trading helped confirm at least a short term ceiling in yields, though it didn't cause any major rally.
10's and MBS hit 8am at slightly weaker levels, but caught a bid after Germany's Schaeuble said he would be welcome to the idea of the ECB reducing liquidity. That accounted for the drop from 1.707 to 1.693 early in the session, but 10's met reasonably strong resistance there, currently back up to 1.70. For MBS the analogous resistance level is at the familiar 104-08 level, which along with 104-07 has come into play frequently this week.
There are no scheduled reports or significant events on the calendar today and volume has been on the light side thus far, suggesting markets may simply try to make it to the weekend with little fanfare. The short term bullish opportunity that we'll be keeping an eye on at the moment is a potential pivot around 1.70 with overnight levels. This could probably be accomplished even if we move up to 1.704. If that's broken, we'd turn to overnight highs as the next test (1.713).
Live Chat Featured Comments
A recap of the featured comments from the MBS Live Dashboard's Live Chat feature, utilized by hundreds of industry professionals each day.
Matthew Graham : "it certainly could be. Long term, a move to that lower magenta line doesn't look impossible. But of course neither does the higher line (here: http://www.mortgagenewsdaily.com/mortgage_rates/blog/305109.aspx). Just depends what way the lead-off goes (if it goes at all), I continue to be concerned by an inability to break resistance, all damn week... same floor as NFP day... "
Gus Floropoulos : "just saying.,...if there is any stored energy its momentum would help mbs....IMO"
David Gaffin : "Hope you are right Gus!"
Gus Floropoulos : "I would like to believe that based on the yield on 10's, the overall weak momentum in stocks, and the uncertainty in the world that the stored energy is bullish energy for MBS"
Matthew Graham : "stock lever has been better-connected this week. The bounce off lows at 9:56am is coinciding with the bounce everywhere else as well. Not uncommon for these data-free days, but at least for now, looking contained. I think the stored energy play is coming some time soon (obviously, if you read this AM's commentary), but it could be next week, and won't be the "final answer," but simply a bullish or bearish lead-off ahead of FOMC/ECB/NFP"
Steve Chizmadia : "No major market moving events for TSY and MBS today so.... Stock lever?"
Gus Floropoulos : "stored energy"
Matthew Graham : "RTRS - WASHINGTON-BUBA'S WEIDMANN SAYS G20 EMPHASISED JAPAN'S MONETARY POLICY SHOULDN'T BE USED TO MANIPULATE EXCHANGE RATES AND SPARK COMPETITIVE DEVALUATIONS "
Matthew Graham : "RTRS- WASHINGTON-GERMAN FIN MIN SCHAEUBLE SAYS G20 LARGELY AGREED JAPAN'S EXPANSIVE POLICY SHOULD BE ACCOMPANIED BY STRUCTURAL REFORMS AND NOT BE PERMANENT "
john murphy : "MH: USDA will want to see 2 yr average on self employed for calc of qualifying income. different standard for eligibility income (all income regardless of whether or not it can be used in qualifying) they mimic FHA in most respects"
Jeff Anderson : "GM, all. Wow, it really depends on the area of the country for USDA. In MA it's been 2-4 days. Not as many of those loans up here."
Jason York : "Actually Hodge, they were at about 16 business days when I called earlier this week, a lot shorter than they have been recently"
John Rodgers : "3http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do"
John Rodgers : "should be but could be higher. the site will state EIIGIBLE"
Matt Hodges : "q1 is just confirm i use moderate income limits...i have the chart"
Matt Hodges : "2. self employed 1 year, but same line of work okay or no?"
Matt Hodges : "1. use moderate income limits for Guarantee? "
Matt Hodges : "jr - usda question if you are still on"
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