MBS MID-DAY: Slow News Morning, Uneventfully Holding Gains


In terms of 10yr yields (not the driver of mortgage rates, but a better big-picture technical indicator for broader bond market momentum), rates have been trending higher in TWO important “trend channels” (parallel lines containing the highs and lows). The most recent trend began in early December after the stronger-than-expected Employment report.

The uptick in yields at the beginning of January, after the Fiscal Cliff mini-deal, stretched the boundaries of the channel, but rates have since been recovering in a smaller trend channel, characterized by choppy movements between the boundaries. That shorter term trend of recovery collided with the longer term uptrend last week and the result was a quick move from 1.80 to 1.89.

bond markets have ebbed back in a slightly friendlier direction since then, bringing us back to the lower end of the longer term uptrend today. The first few hours of domestic trade have seen us just barely poke through the resistance (1.8357) with 10’s currently down to 1.8188. MBS are up 7 ticks at 104-13, but aren’t quite at the point of testing their own trend channel (boundary line about a tick higher at 104-14).

These technical developments are essentially all we have this morning in the absence of meaningful data or interesting overnight market movers. We would note, however, that 10yr yields, after falling in the Asian hours, snapped back slightly higher in European hours, but met with decent support around 1.84. The domestic session’s pivot point is slightly lower at 1.83, but any weakness that creeps up today may look for support there as well at the outright overnight low at 1.849.

FHFA’s monthly home prices were “as-expected” and a non-event for markets. Also not a market mover this morning, but confirming what we saw last week, a popular survey of investor positions shows “longs” (betting on lower rates) fell sharply, likely reflecting the quicker move to capitalize on the high rates at the beginning of the year. This, along with the fact that short positions moved to their highest levels in more than 2 years suggests that investors are on board with the generally rising rate environment, though we’d continue to emphasize that the trend of rising rates in the long term allows for a wide range of of movement in the intermediate term (i.e. 10yr yields could fall into the 1.6’s and we’d still be trending higher in the long run.).

There’s no remaining significant data today as far as economic reports, but markets are waiting for any word of the House voting on legislation to extend the Debt Ceiling deadline–something we view as more likely to be a negative than positive as far as bond markets are concerned, though the brunt of that negativity would come after the Senate passes the bill, if/when that happens.

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