MBS Day Ahead: Lowered Expectations for the Most Official of Unofficial Market Closures

The day after Christmas falls on a Friday this year.  Incidentally, that's today, and that fact puts us in a position to even more firmly declare it an unofficial holiday. 

Despite the prevalent role of algorithmic trading in some sectors, markets are nothing without humans.  Overnight volume numbers in Treasury futures back this up.  A moderately busy overnight session would see over 200k 10yr contracts by 8am.  A slow holiday-week session might see less than 100k.  Today saw under 17k.  That can easily be traded in a single minute following important data releases on normal business days.

Point being, there's something special about today when it comes to holiday-week slowness.  But as stupid as it is for financial markets to be open today, they're open nonetheless.  Lenders will likely price conservatively in most cases, with the intention of repricing only in the case of emergency.  So when we examine the fact that MBS are up about an eighth of a point at the open, it doesn't mean much n terms of rate sheet changes, and we can't be sure of how much movement it would take before that changed.