MBS AFTERNOON: Mortgages Hold Steady as Yield Curve Steepens
After testing yesterday's 830AM yield level, the 10 yr TSY note has steadily moved back towards 3.58%, where overseas trading opened last night. All in all no progress was made for the 10yr today. Volume was modest as 780K contracts were traded, well below yesterday which end up approaching 1,000,000 contracts (875 at book close). Of note...the 10 yr FAILED its tests of the 38% retracement level (3.51%) today...a potential sign of futher weakness to come. The culprit: more resistance levels broken on S&P and higher interest rate volatility this afternoon, signaling that traders are buying options to protect themselves from a wider range of potential price outcomes.
Not much to report in MBS land. FN 4.5 prices went sideways in the second half of the session...RANGE BOUND. On the bright side, as the 10 yr TSY yield steadily rose all afternoon, "rate sheet influential" MBS prices didnt fall and yield spreads tightened. If TSYs dont correct again overnight/tomorrow morning...there will be some catch up selling in the morning, lower "rate sheet influential" MBS prices are bad for rate sheets.
Since so much (yield curve behavior) has been predicated on the stock lever lately, we must take a look at how equities are acting at the moment.
The S&P is approaching its 2009 highs...and running into all kinds of resistance in the process(again). The rapid rise has given us several psychological and technical sell signals. BUT...yes there are also a few indications that traders are willing to push stocks higher....like volume spikes as the S&P crossed over major resistance levels, indicating the market is willing to accept higher values.
Oil is reflecting a rosier economic outlook as NYMEX Crude prices are going out near the highs of the day. Currently $62.13.
The dollar is near its weakest levels of the day against the EURO. Currently at $1.4145 after falling as low as 1.4160
2s vs. 5s: 147bps
2s vs. 10s: 259bps
5s vs. 10s: 112bps
PS...This is not the last post of the day