There are tick charts and then there are charts with predefined intervals. Tick charts advance 1 tick of physical chart space with each new trade or quote. Thus, an incredibly busy hour could occupy the same amount of horizontal space as an incredibly slow four hours. Most charts, however, are “minute, hour, or day” charts meaning that any ticks occurring within those time intervals will not be shown.
It’s with this concept in mind that we’d relate movement in MBS this morning. Whereas the “minute” chart looks like a semi abrupt drop and firm ground-holding just after 10am, the tick chart shows a gradual drift down from morning highs to current levels. Granted, we have seen support come in at 103-07, but that’s already 5 ticks off from 103-12. More importantly, it’s not as if MBS moved to 103-07 quickly and held their ground decisively.
There’s a firm downtrend (albeit in low-ish volume) intact resting along the highs of the day. This downtrend soon collides with 103-07 and one of them has to win. If 10yr yields keep doing their own “drifting” higher, and MBS drift any lower, we could soon be considering negative reprice risk.
The moral of this story is not to say that reprice risk is here now, but simply not to tune out due to the positive morning and relatively flat levels. Also, we don’t want to read too much support into the bounces at 103-07. It’s looking more likely that we’ll break lower, and if we do, reprice risk will increase.