MBS RECAP: 3/12/2012


We got a nice example of a ‘pivot point’ on the 2-day chart of Fannie 3.5 MBS as 103-10 held as support. Actually, the pivot point has been well-traveled for longer than the current 2-day period, acting as sort of a central pit stop between highs and lows for 2012.

The first major examples of technically motivated price movements around 103-10 were seen as it capped gains for th month of January on three separate and distinct occasions, finally breaking late in the month.

it was almost a perfect midpoint between January Lows and early February Highs at that time, and now it’s filling a similar role as the midpoint between February and March’s highs and lows. Indeed prices seem to be honing in on 103-10 as the center of the debate between higher and lower MBS prices.

This isn’t the kind of pivot point that we’d expect to act as significant support or resistance in the short term. Rather, we’d expect it to be crossed several more times in the near future. But ultimately, it looks as if it will prove to be a sturdy ledge in a push higher, or a frustrating ceiling preceding a more pronounced downturn.

Tomorrow’s data and events might begin to inform such gyrations as we’ll get major representatives from bond market’s three favorite food groups. For ECON: it’s Retail sales in the morning. For TRADEFLOW CONSIDERATIONS, it’s the 10yr Auction at 1pm, and for MONETARY POLICY, it’s the FOMC Announcement at 2:15am.

Plenty of market moving potential here… But a definitive break outside the 4-5 month 30bp range in 10yr yields feels like a long-lost dream. Incidentally, we’re OK with that as it’s been just great for MBS.

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