MBS RECAP: Surprisingly Tame Reaction to Bernanke Testimony.

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From MBS MID-DAY: “Bond markets had strengthened somewhat after the initial release of the speech but to attribute it to the speech itself could be a bit misleading. In actuality, bonds were stronger this morning until newswires just before 9:30am made it seem as if Germany’s Merkel was implying that NEW financial instruments–assumed to be some iteration of the hot-topic “Eurobonds”–had been created. Bonds weakened, stocks rallied, until markets learned (or rather, “figured out”) that Merkel was simply referencing instruments that “had already been created.” Markets then corrected to previous levels and the Bernanke Testimony/QA has been largely uneventful, but if anything, slightly positive for Treasuries and MBS.”

No genuine surprises in the QA, and bond markets are getting about as much ‘love’ as they could hope for in the sense that Bernanke continues to reinforce the committee’s readiness and commitment to do “something” if needed. He’s playing it pretty close to the vest, but viscerally, it seems to have a bit more gravity with comments such as Ben’s reminder that “we have the authority to provide liquidity against collateral, and the Fed stands ready to use that authority.”

Little has changed about trading levels with 10yr yields remaining squarely in a 1.62-1.68 range, outlined as the closest, tamest pivot points in our Day Ahead post. Fannie 3.5’s are up 5 ticks at 104-27 and Fannie 3.0’s are up 6 ticks at 102-10. A couple of the “early crowd” lenders have repriced positively in recent minutes, but MBS prices have headed back toward more middle ground in the intervening minutes. Needing to be closer to 105-00 in Fannie 3.5s, to see more.

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