MBS Day Ahead: Limited Data, Final Auction, and Month/Year-End Buying Potential


NOTE: This paragraph will be at the top of the Day Ahead for a few weeks.  Once you’ve read it, feel free to skip it.  The Day Ahead has long been my venue to offer deep thoughts with a mix of big-picture and near-term technical considerations.  I’ll still be doing that, but in posts on MBS Live and under the ‘General Commentary’ heading (which still shows up on MND for free, but delayed).  The Day Ahead will quickly evolve into a more cut and dried run-down of the events of the day (as it should be).  Some days are more interesting than others, so some posts will be almost comically short, depending on the slate of events.  It will still contain charts from time to time, but generally just to lay out technical levels we should be watching.  

Yesterday’s surprisingly strong 5yr Treasury auction put some amount of wind in the sails of bond markets.  There is a cautious and an optimistic way to approach this.  On a cautious note, the auction could speak to overdeveloped month/year-end buying needs.  On an optimistic note, it could instead be suggesting that yields have risen enough to attract significant demand–especially from overseas.  

While it’s nice to be able to entertain positive hopes for a change in the last 2 months of 2016, nothing is certain until we see how trading is going past the first week of January.  In the short term, it would be a small victory to hit the technical levels at 2.42-2.44% in 10yr yields.  That would be a tall order this week, but if you want to know what relative victory would look like, there it is.

Today brings no significant economic data.  Jobless Claims reports at 8:30am, but no one really cares about Jobless Claims anymore.  The afternoon’s 7yr Treasury auction is more interesting, for the obvious reason that it affords an opportunity to see if yesterday’s auction was merely a harbinger of deeper feelings among bond traders.  

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