Yes, it’s strange to consider, but we may be looking at a fed speaker other than Bernanke moving markets enough to be detected. The 3yr auction certainly did NOT shake things up much, coming in just slightly better than expected (3.4 BTC vs 3.3 last time and a slightly lower .379 high yield vs .386 WI).
Longer maturities didn’t move following the auction, but did rise slightly after the Fed’s Plosser flew down from perch high atop Hawk Mountain to squawk more hawkish notes regarding the recent discussion out of the FOMC on “targeting” various economic metrics such as U/E and GDP are merely “trojan horses” for increasing inflation. Plosser argued that inflation, in fact, is the only one of those three things the fed CAN control and should adopt a “no more than 2% explicit target.”
Kocherlakota fired back shortly thereafter in a separate speech saying that these sorts of specifics would ease uncertainty in the markets. Kocherlakota also reiterated the potential of the Fed to buy MBS, although this is a foregone conclusion as a possibility after Bernanke’s presser last week.
MBS are chopping around a bit on all the hullabaloo, but 3.5’s are still a tick in the green at 102-03. 102-06 is ongoing resistance today as is a 2% level in 10yr yields (currently at 2.0151). We’re in a bit of a holding pattern where any further MBS weakness could cause reprices for the worse and a solid return to 102-06 or above, reprices for the better.