MBS AFTERNOON: MBS Poking Its Head Out... More Cautiously This Time...

We're gaining some resolve alongside treasuries as we enter the post-close hours in bond markets.  The gains started an hour before the market close at 3pm however.  This is not much to write home about, but it sure beats where we were.  Perhaps most fascinating is that it is bringing us back above 99-10 on the 4.5, the level we are assessing as potential day over day downside resistance (intraday blew its chance earlier today obviously!).  Current prices are at the best levels of the afternoon, a few ticks above that potential floor with the 4.5 at 99-15.  Take a look at the price page for more details.

Graphically now, the pretty picture:

For once in a blue moon, this is OPPOSITE the movement of the yield curve, which is on somewhat of a flattener.  More appropriately, the longest maturities are doing the best (unlike MBS), the belly is suffering (unlike MBS), but there's a skosh of positivity in 2 yrs which are up one tick (unlike MBS where shorter durations are performing best, but similar in the sense that both are positive).  Very fascinating stuff and we'll devote some more time to discussing it in the close.

Looking at spreads vs. the 5 yr note, we've had a ceiling of 2.14 overhead all day, with 3 bounces so far.  Yesterday spreads blew up to 2.18 having begun the day at 2.04, the lowest (tightest) point in over a year.  Continuing to stay inside that range would be fine as long as the cue ball (tsy's) line up properly (moderate in price).  Even at these treasury prices, some continued spread tightening both on the primary and secondary market is not out of the question.