MBS MID-DAY: 2/27/2012


10yr Notes moved lower in yield throughout the overnight session hitting New York just under 1.94. They’ve held those levels in heavy volume so far this morning, though a decent amount of it is due to calendar roll trading as 10yr futures are in the process of rolling to June deliveries from March.

MBS began the day in similarly bullish fashion, but not quite as bullish as Treasuries. Whereas 10yr Notes are up about half a point and 4.6 bps lower in yield (1.93 at the moment), MBS are up a quarter of a point to 103-21 in Fannie 3.5’s. 103-18 has been a well-traveled pivot point for MBS, so the fact that prices didn’t move through straight away this morning isn’t a major concern.

Apart from the calendar roll trading in Treasuries, there was a substantial block trade earlier this morning at 520am of 9000 5yr Futures, which helped maintain the general overnight bid. In addition, news over the weekend from the G-20 meeting that international leaders need to see a more substantial contribution from Europe to their own failsafe mechanisms before agreeing to more aid via organisations like the IMF. Rising oil prices are another factor generally contributing to the “risk-off” trade that seems to be taking root so far this morning.

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