MBS RECAP: Bond Markets To Any Lurking Guidance Givers: "Your Move!"

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The 7yr Treasury Auction came in 1.705 vs a 1.505 “when-issued” yield at 1pm’s auction bid cut-off, making this a moderately large 2bp tail (Treasury Auction Jargon Refresher HERE if you need it). The bid-to-cover was a low 2.64 compared to a recent of 2.85 and 2012 low of 2.72.

While this does look to be reinforcing the 1.568-ish floor of resistance in Treasuries at the moment, bond markets certainly haven’t done what you might expect them to do on the heels of such an auction. Then again, if you were tuned in to yesterday’s 5-yr auction, the same thing happened. So maybe it would be fair to have expected a repeat performance, or at least hoped for it.

Whether or not that continues to be the case remains to be seen. So far so good for now as 10’s never went higher than 1.59 on the initial knee-jerk response and are currently back down to 1.575. Apart from the shorter term 1.568 floor, there’s a more pronounced range of technical resistance around the mid 1.55’s. Anything above there is sort of a non-event heading into tomorrow and preserves the sideways range from early June.

On the MBS front, Fannie 3.0’s are up 8 ticks on the day, at 102-28 and 3.5’s up 7 at 105-10. Both are little changed since 10am and holding narrow ranges right through the post-auction trade. We’ve already seen a few scattered positive reprices, but more could follow if the general “holding our ground” theme continues unabated.

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