MBS MID-DAY: Green Start Turns Red

MBS Pricing Snapshot

The technical boundaries mentioned in the last alert were broken, and as feared, there is a good amount of follow through selling. Not sure where this will stop yet, but 10's already up to 2.47's and Fannie 3.5's pushing 101-00. Negative reprices are coming, probably widespread.

After some brisk selling into the 9:30am equities open, bond markets met with decent support (though followed by decent resistance at 2.42 in 10's. MBS ground their way back to unchanged levels but have already given up two ticks to sit at 101-13 in Fannie 3.5s.

We're relatively interested in 2.42 in 10yr yields at the moment. If it continues to pose "floor problems" for 10's, MBS may continue to languish. If 2.42 looks like it's motivating a bounce (which it sort of does), MBS may move back lower. If it remains unbroken for the rest of the day, it would be a substantially negative technical indication, and set off bearish weekly technical signals.

Stay cautious here if you have something lockable and haven't already seen a reprice. Recent rate sheets (after the initial selling spree) aren't at much risk, but given recent volatility, that could change much more quickly than normal.

As a final note, the hope is that the previous high yields in 10's are the upper end of a range that will hold through the day. If 2.455 breaks however, things could get dicey. So keep an eye on that level as well. (to simplify: Under 2.42 = best, 2.42-2.455 = ok, over 2.455 = bad, over 2.455 in active trading before 3pm = worst).

For those of you with overnight price protection or who otherwise have access to yesterday's rates, just a quick note that the 9:30am hustle and bustle has taken MBS into negative territory. Fannie 3.5s hit 101-12 at their lowest just moments ago. Liquidity is suffering, so trying to pin down a bounce is tricky business. Watching 10's instead, it looks like the question is 'to hold or not to hold 2.44.' Looks like "not" at the moment, so MBS selling should continue for now.

Overnight Treasuries had an exceptionally calm night in the context of recent volatility. Trading levels remained not only inside yesterday's levels, but didn't even venture outside the narrow range of yields seen in the last 3 hours of the trading day.

10's began the night slightly higher, grinding between 2.42 and 2.44 before the increased liquidity of the EU session brought better buying. Yields made it down to 2.38 before finding a floor there just after 5am, and again at 8:15am. 10's are currently testing domestic session highs at 2.421.

MBS opened a few ticks improved from yesterday's latest levels, added to those gains into the Treasury bounce and similarly followed the move back to the weak side. Though still in positive territory, Fannie 3.5s are off their 101-26 highs, now up only 3 ticks on the day at 101-17.

S&Ps are set to open about 10 pts higher after a docile overnight session. Since typing the last paragraph, 10yr futures volumes are spiking a bit as yields press upward closer to 2.43 and MBS come under another few ticks of pressure. 10's are in the red now, and MBS are only a tick or two in the green.