MBS MID-DAY: 1/20/2012


The Day Ahead post in the MBS Commentary channel is linked below and gives a good backdrop for this morning’s weakness. In it, we mention 10’s rising over 2% being a problem for MBS in the short term and indeed we’re seeing that play out currently as 10’s are at 2.016 and Fannie 3.5’s are down to 102-22.

We wouldn’t read too much into the actual 2.000% level in 10 yr yields as they’ve made it quite a point to disregard the whole number with an almost disdainful indifference in the past. So far this year, we’ve seen highs at 2.012 and 2.021 on consecutive days (1/4-1/5) in increasing volume. 1/6 saw yields climb as high as 2.046, but closed lower, in decreasing volume, leaving 2.021 looking like the best candidate for support.

Interestingly enough, the highest 10yr yield seen this morning is exactly 2.021. Remember, that doesn’t mean we should EXPECT it to hold, but rather that if it is broken, A) that could present a somewhat significant technical signal for further weakness and B) the next piece of information from a pure yield level perspective suggests another potential support level in the 2.04’s. We’ll cross that bridge if we come to it though… So far, holding under 2.021, and MBS show their appreciation by bouncing back from previous lows at 101-19 (up another 2 ticks as I type, to 102-24 now). MBS should continue to be relatively “happy” if 10’s continue to stabilize.

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