MBS RECAP: Calm, Positive Morning Gets Rolled Over By Snowball Selling


Yet another alert to emphasize the seriousness of the situation. The whole point of the “Tasuki Gap” conversation in this morning’s “Day Ahead” post was to introduce the possibility that markets had identified the near term range boundary around 2.14 in 10yr yields after not being able to make it back to the site of the initial gap from March 13th in the mid 2.13’s.

It’s now possible that we’re seeing exactly that. What began as a minor pop driven by some ECB headlines and a few large blocks of sales in TSY Futures quickly took on “snowball” characteristics resulting in the largest 10 minutes of volume of the entire week.

The battle in question is occurring in Treasuries at the moment. MBS are merely keeping pace, and outperforming as the normally do into TSY sell-offs. We’re looking for 10yr notes to find support between 2.2068 and 2.2120. If they do this, the bleeding should stop for the day, but it could be too little, too late to escape the sending of the message that the near term range boundary is in. In this case, we’d be looking at an equivocal range trade slightly higher in yield ahead of next week’s employment data.

Fannie 3.5’s are currently down 6 ticks on the day at 102-24 and 10yr yields are up over 4 bps to 2.2016, having briefly tested the previously mentioned 2.2120 level. Too soon to confirm it as a bounce, but we’re hoping…. If you haven’t seen a reprice for the worse yet, they’re coming. (the tasuki gap post mentioned about is linked here:)

Leave a Reply