MBS AFTERNOON: Stocks Stubborn. No Progress in Rates

Besides the moments of excitement after econ data and the 2 yr note auction...not much progress was made in the TSY/MBS market today. Volume wasnt good but it wasnt bad. 707,000 10 yr contracts have been traded. 146K 2s, and 365 5s. I would say this is above average trading volume.

Here's how the price action looked in 10s...

Here's how it looked in terms of yield...no progress has been made yesterday or today's open.

In MBS world, volume was below average again. Even with the volatility, servicers appear to already be adequately hedged while remaining market participants continue to meddle "up in coupon". Besides that...originator selling was minimal as just under $2bn was  offered up by lenders...which was easily absorbed by the Fed. We did note some spread weakness in 6.0s, this is usually an expected event when the yield curve flattens, however due to the fact that lending guidelines remain tight and borrower credit quality is deteriorating coupled with LLPAs, HVCCs, MI (lack of), etc etc etc...MBS investors havent been too concerned about prepayment risk. However, today we saw intereting stuff happening...we saw signs of a slight move down in coupon from a few accounts...perhaps this is as a result of increased political pressure being placed on servicers to "get aggressive" with Obama Administration loan modification programs? Or maybe it was just because volume was light, the yield curve was flattening, and 6.0s were not the trade of choice...could be one, could be the other, could be both, could be none. Either way...not much progress was made in either direction today!!!

The intraday volatility allowed lenders to reprice for the better, but the intraday volatility also forced lenders to reprice for the worse. Not much progress made from the open, yesterday's slight move higher was however kept in tact today...

The S&P continues to stubbornly bounce around between 970 and 980 as traders looking to buy on weakness moderate the range. This defines RANGE BOUND

We have spent a lot of timing spinning our wheels, however after the smoke has cleared...NO REAL PROGRESS HAS BEEN MADE. Stocks are searching for reasons to move higher as many market participants are chasing the rally...which is keeping momentum from building in the TSY and MBS market.

"WAIT AND SEE" / "WAITING FOR GUIDANCE"MODE IS GETTING OLD

2s vs. 5s: 152bps

5s vs. 10s:108 bps

2s vs. 10s: 260bps

Here's a longer term snapshot of the steepness of the  yield curve as measured by 2s vs. 10s...