MBS began the day on a down note with prices off 5/32nds. In the absence of data (or anything at all, really), bond markets found their footing between 8:30-9:00am and advanced steadily until Bernanke’s speech in the afternoon.
By that time, quite a few lenders had repriced positively on the day. Risks shifted temporarily to the downside as MBS gave up their gains after Bernanke, but as soon as Treasuries held the 3.0 percent level, Fannie 4.0 MBS stuck to their 103-00 level. They’re currently drifting toward the close at 103-01.
There was no overt reason for the weakness contained in Bernanke’s speech, but it was clearly the moment at which bond markets decided to abandon what had been a decent-enough afternoon rally. Volume was as low as expected with the storm keeping many players sidelined in New York and next week’s events (FOMC Minutes and NFP) continuing to provide a far more compelling reason for traders to come back from holiday breaks.