MBS LUNCH: Expected Moderation Arrives
Of course all this could go right out the window after the FOMC announcement, but the moderation we expected at 3.75 on the 10yr has occurred and coincided with a similar moderation in MBS. Sept Contract 10yr Futures are at 115-30+ which is actually a few ticks higher than they were at just after 10AM when tsy's made their lows of the day. The range in futures looks to be moderating between 115-28 and 115-31.
If that continues to be the case, over 99-00 stability is likely for MBS.
Bottom line remains FOMC for today followed by 30yr auction tomorrow as either can change everything... Keep in mind that accounts had to go into the 10yr today BEFORE FOMC whereas the 30yr tomorrow is obviously after FOMC. But participants need to adjust 30yr positions according to 10yr results today as they cannot afford to make the assumption that the 10yr underbid due to FOMC. So if that turns out to be the case, we could see the 30yr perform better than the 10yr today suggests. The result would likely be good support for the duration that is currently getting hammered.
PS...we are expecting some verbiage on commercial real estate from the FOMC