Just a slight addendum to the recent “MBS Mid-Day” linked below. The traditional post-fed-buying bounce that we noted as absent at 11:00am came instead at 11:15am. The more interesting topic now, is not the timing of the bounce but whether or not the mid 1.83’s will now act as some sort of ceiling for 10yr yields. If they do not, it would be in line with the “head fake” mentioned below (the upside here is that MBS would be able to hold their ground much better than Treasuries into any weakness right now). If 1.83’s DO provide a supportive ceiling, it’s disconcerting on two levels.
First, it would make us wonder how tomorrow’s auction would fare if it followed a moderate rally to multi-month lows. More frustratingly, it would force us to watch as MBS continued to get squished against the ceiling in the low 104’s (in other words, Fannie 3.5’s can only be pushed so high without any meaningful liquidity in 3.0’s–something that’s harder to muster than it otherwise would be if we weren’t 2 days before the roll).