MBS MID-DAY: Massive Sell-Off Shaves Half a Point From MBS

MBS Pricing Snapshot

Any lender that took down marks before 10:21am is already down 6 ticks. Earlier lenders are worse off. All those rate sheets are at risk of negative reprices.

Big nasty distribution sell-off following auctions, plus technical correction after crossing 1.84 in 10yr yields. Short term selling snowballs got big enough to bring longer term money in as a seller. Volume is out of control high. 10's are gonna crack our 1.90 target in a few seconds and MBS are down almost half a point. It's getting ugly.

Just a quick heads-up by way of course correction to the previous update. Any attempts at "clawing back" are on hold and "fighting for survival" is a better characterization at this point. Bearish bets in Treasuries and MBS were waiting to see if Bernanke would have anything to say about monetary policy, but his speech instead focused on the shadow banking system. Then at 10am, the Philly Fed Survey of Professional Forecasters held few surprises an provided no reason for the would-be sellers to hold off any longer.

10's have ratcheted up to 1.862, their highest levels of the morning and look quite serious about attempting to break higher. MBS are at their lows of the morning at 103-14. There's already reprice risk out there, if a lender priced early.

Last night was one of the roughest for US Treasuries in a long while. Japanese markets kicked off the drama for US debt as the Nikkei rose almost 3% and Japanese 10yr's rose over 70bps. The Yen cracked a 4yr old technical ceiling just over 100, and shot higher (weaker) from there. US 10's hit 1.872 2 hours after the European open, in much heavier volume than normal, and while breaking through the important 1.84% area.

While Treasuries have managed to correct from overnight highs leading into the domestic session, it continues to be a bumpy ride. We only made it as low as 1.838 at the 9am hour and are currently running the risk of "pivoting" higher over the long term inflection zone (roughly 1.83-1.84). If we don't move any lower than that today, the situation would be increasingly bearish, further confirming May's post-NFP bounce back into 2013 trend areas.

For their part MBS opened lower--partly due to overnight weakness and partly due to last night's roll. Factoring out the roll, we were down 6 ticks from yesterday, and are back there again now. In the intervening time, we lost ground right out of the gate, but started to stabilize after 8:20am. Things were fairly flat until the stock market opening bell, and have gotten choppier from there. 10's made another attempt at 1.84 and bounced higher right at 9:30 (currently at 1.851).

Volume is brisk and markets are certainly asking us to believe that risks are high for a continued sell-off. As often as not, that's a bluff, but this one looks like it should be taken seriously for now.