MBS RECAP: 11/9/2011


Like yesterday, MBS approach today’s Treasury auction having traded in a range “inside” yesterday’s range. We make an exception for the earlier run up above 102-10 not only because of it’s brevity, but also the prevalence of the 102-06 ceiling yesterday and today.

10yr yields have been doing well by comparison, essentially trading a pivot off yesterday’s lowest yields in the 1.99’s. Although the world is largely focused on the Italy-inspired risk-off trade, an auction that deviates from averages by a wide enough margin could push yields back over 2.0, or lead to a break of 1.95 resistance (but the latter feels like it relies more on “panic” as might be manifested by stock/euro weakness). At any rate, here’s the run-down of recent 10yr auctions:

– 6 out of the last 10 have stopped at lower than expected yields
-bid-to-cover has been mostly over 3%, averaging 3.06 for the last 4 refundings
– indirect bidders have averaged about 44%.

It’s a slight concern any time rates are rallying into an auction and with 9/13/11’s stopping out at 2.000%, today’s will be vying for the lowest high yield in modern history. Instinctively, that seems like a challenge, but we been surprised in the past by the degree to which markets have traded in the opposite direction of such fears. We’ll know in about 15 minutes either way.

Leave a Reply