MBS and Treasuries Pushed to the Limits of Recent Ranges

MBS hit their highs of the day just after Philly Fed at 11AM and have been weaker ever since.  10yr yields made an attempt to hold their ground at 1.94 which has been a fairly well traveled pivot point in the past and present, but ultimately broke through and immediately moved higher in the highest volume trading hour of the year.  This entire phenomenon is pictured in the chart below.  The top section contains daily candlesticks which show the ongoing downtrend in yields and the support that ultimately occurred today at the upper limits, but there’s additional insight to be gained from zooming in to an hourly view, which is done on the lower half of the chart with corresponding notes. 

The moral of the story is that we’ve simply moved from one test of support to another.  If yields move lower tomorrow, it would reinforce the longer term trend, and potentially set up a fight at 1.94 again.  We’ll discuss the higher potential support levels between 1.98 and 2.10 if yields break higher tomorrow.

MBS are similarly at the weaker limits of their long term trend as can be seen in the chart below.  In fact, prices are definitely below the main trend channel, but they’ve done this on two salient occasions before.  Each time, the following 4 sessions have resulted in a big bounce back.  It would be fairly disconcerting with respect to that long term trend if MBS do not bounce back tomorrow, but only inasmuch as this particular trend is concerned.  While that may motivate folks to lock who haven’t taken that opportunity over the past few days, it wouldn’t officially be the “end of the world” given that the break from the trend would be occurring at high price levels.  If MBS do, in fact, confirm a break below this trend, but are able to find some sideways support, that would be just fine with us.