MBS Day Ahead: New Home Sales and Second Chances

We approached Thursday's session with a mainstream viewpoint and alternative, more bullish possibilities to consider.  The mainstream viewpoint (among analysts, strategists, traders, etc) generally held that rates would be moving higher after last week's big rally.  From there, specifics weren't as unanimous, but I saw a lot of calls for Treasury yields to make it to the 2.4-2.6% range before potentially bouncing back for another rally.

That's still entirely possible, but the more bullish alternative would be for the post-rally correction to be shorter-lived, and to sputter out somewhere near "the gap" between 2.26 and 2.28 created on the morning of October 14th (The previous Friday closed at 2.28 and the 14th opened at 2.26, making for an uncommon gap in yields).

As the day progressed, prospects looked dim.  Yields went as high as 2.30, but interestingly enough, closed at 2.279, just inside the gap.  At first glance, that might seem pretty nifty, but it likely wouldn't have been the case had it not been for unexpected Ebola headlines in the afternoon.  Furthermore, there's been an increasing level of apathy among market participants as the realization sets in that NEXT week will be the stage upon which any high trading drama will play out (FOMC, GDP, Month-end).

All that to say, it doesn't look like any big-ticket decisions will be made until we get closer to next week's FOMC.  For what it's worth, we're still in the game when it comes to fighting off those bigger sell-offs mentioned in the 'mainstream' scenarios.

Today's only economic data will be New Home Sales (NHS) at 10am.  As with all economic data of late, markets will only feign a response (beyond an initial obligatory knee-jerk in the event of a big beat/miss) if the data happens to fall in line with the prevailing trading goals/sentiment.