MBS Morning: Stronger Start Despite Charts; Some Data This Week, But Fed Day Remains in Focus

There is a smattering of data in the week ahead with Tuesday's CPI and Thursday's Retail Sales reports being the headliners.  Data is merely a "potential" market mover though.  Next week's Fed announcement is an "almost certain" source of volatility, for better or worse.  In addition, by this time next week, markets will have a better sense of whether covid numbers actually turned a corner last week or if it was merely a byproduct of the holiday weekend. That leaves this week as a sort of prologue to next week's main events, but data and corporate bond supply could still make things interesting.

Technical patterns support the idea of bonds hunkering down ahead of a big decision.  While moving averages can't do much to predict the future, yields find themselves in an uncommon pattern, trading a progressively narrower range around the 200-day moving average.  Even without the moving average, such consolidation patterns always imply more decisive movement after the breakout.

On a housekeeping note, today is "roll" day for 30yr UMBS.  If you're not sure what that means, check our primer on the topic (HERE...). If you're not the link-clicking type, the short story is that there's a different MBS price for each month, with markets only trading 1-2 months into the future.  Prices tend to be one to three eighths lower from one month to the next.  In the current case, the now-retired September coupons were .15 higher than the current October coupons.  That means we can add that .15 back when calculating day-over-day change.  The net effect is that 30yr UMBS are actually slightly stronger this morning even though they look like they're lower on the chart.