MBS MID-DAY: Post-NFP Volatility Takes Bond Markets Back Into The Range

MBS Pricing Snapshot

Whereas equities have made a "higher high" just now vs the last high at the 9:30am open, Treasuries look to be making a "lower high" vs the same time (2.136 moments ago vs 2.14 at 9:30). That's been good new for MBS, bringing Fannie 3s up from 100-06 to 100-15 currently, which is 8 ticks lower on the day. Fannie 3.5s are 5 ticks lower on the day at 103-15.

Bond markets aren't out of the proverbial woods yet, but off the previous lows. Now that the first hour of cash trading is out of the way for stocks, we might see the stock lever hook back up a bit before the post-lunch hours open the door for a divergence (lighter liquidity and position clean-up heading into the weekend).

On a final note, "triangles" are forming in both MBS and Treasuries (consolidating range, or "higher lows" and "lower highs"). The result of the triangle break may give us an early indication of whether or not current levels will be a floor or ceiling for the rest of the day, but the next test would be at the morning's previous highs just over 2.14 anyway. In other words, if we see a meaningful break higher in 10yr yields, it suggests 2.13 as an intraday resistance level. A break over 2.14 would be more disconcerting.

(I was just about to send out this alert when 10's began breaking over 2.13, and are up to 2.1414 already (about 60 seconds ago), so that's a net negative indication and we're now watching the morning's previous highs at 2.14. Holding so far, but only barely. MBS have given up a few ticks. Volatility hasn't quite died down yet.

Not that rate sheets are out yet, but for those of us with access to yesterday's prices, just a heads up that Fannie 3s are down 16 ticks to 100-07 and 3.5s are down 11 ticks at 103-09. 10's are up to 2.123, which isn't much higher than previous highs. It's still not a foregone conclusion that we sell-off catastrophically from here, but at the lows for now.

The bounce mentioned in the last alert has held, and also coincided with bounces in related risk markets (Euro, Bunds, Yen, Equities). 10's shot up to 2.12, back to 2.10 and back to 2.12 fast enough that I've had to rewrite this sentence 7 times despite typing 100wpm. MBS are leaking badly with Fannie 3's down 7 ticks to 100-16.

There probably wasn't any possible NFP result that would have given markets more to think about this morning. The headline is right in line with consensus, and last month was revised minimally lower. Bond markets were stunned for roughly 3.5 minutes, with both MBS and Treasuries holding steady at unchanged levels.

But then 10's shot lower from 2.095 to 2.05 in the blink of an eye and MBS perked up and paid attention, moving quickly up to 100-28 momentarily. Both MBS and TSYs have ALREADY BOUNCED unfortunately, and we're back to fighting for unchanged levels.

This is an exceptionally choppy reaction to the NFP print, but in the big picture that's not a bad thing considering we were coming into it at the lows of the pre-NFP range. More to come as the reaction unfolds...