MBS MORNING: Range Moderating. MBS Weak
The 10 yr note yield had a bit of a knee jerk reaction to the better than expected Consumer Sentiment data. Volume is not especially heavy in the 10 yr sector as 3.50 is considered by many as a rich valuation....expect this yield range to remain a strong resistance point.
Mortgage have weakened considerably this morning...mostly as a function of profit taking, some supply, and a general lack of activity/demand for MBS in the marketplace (quarter end). When I say "weakened"...first check out the price action...its been choppy. Breaking 102-00 doesnt seem possible for the FN 5.0 while "parnertia" is exerting its profit taking forces on the FN 4.5 (I show current coupon at 4.59 which may be placing a little too much wieght on 5.0, but thats how I roll right meow...not going to award the 4.5 new title belt until after June 30 btw)...
Now check out yield spreads...WAY WIDER! This is further illustration of MBS WEAKNESS....
The range is moderating this weakness as our directional guidance givers are seemingly stuck. Furthermore the perception of cheapness affords the ability to set short term positions (98-20 on FN 4.5. 101-23 on FN50) while higher dollar prices are not left to linger long ($100-00, $102-00 respectively)....eh but then again trading flows are VERY SLOOOOW so all in all maybe we just pace our benchmarks for the rest of the day (directionally at these spread levels..higher TSYs prices, higher MBS prices (adjust your MBS offer to ensure pacing relative values)). This would imlpy that lenders will likely allow rate sheets to stay stable today as most current delivery month activity is not indicative of demand to come....(roll trading quiet too!!!)
I see a few rate sheets pricing par near 5.0 but most lenders are not being too "giving" on this Friday before month and quarter end...
2s vs. 10s: 241bps