One of the bullet points in this morning’s commentary said “bond markets would rather be napping.” As it turns out, they made that dream a reality right from the start of the day. 10yr Treasuries held an outrageously narrow 2.86-2.88 range for all but a few brief moments and MBS were similarly staid. Additionally, both of them traded increasingly narrow ranges throughout the session, with the afternoon levels well-telegraphed by the “triangles” that were forming in the morning (instance of lower highs and higher lows, implying converging trends in the future). I’ve run out of ways to say that bond markets have pulled up stake and are already setting up camp for Wednesday’s FOMC Announcement.
Sideways Grind Into Final Hours; Nothing Interesting Happening
There continues to be very little to report as bond markets have stuck to the “exhaustion” script from this morning’s commentary. Everything from yesterday morning has been a gigantic, narrow range-trade. The fact that Treasuries and MBS continue in their triangular trading patterns this afternoon is just more confirmation that they’d already given up by the time we first pointed out the triangle this morning.
Even if trading levels deviate from this consolidative pattern, we wouldn’t read any significance into that given the drop off in volume (both for the day as a whole, but especially after 12 noon). To reiterate, it’s all about next Wednesday’s FOMC.
Nice Supportive Bounce in Treasuries; MBS Calming Down Now
By way of an update to the last alert, MBS have bounced back a tick and a half after Treasuries put in a solid bounce at 2.88 for the second time today. There’s a pretty good base of support underlying that in Treasury futures as well (from a technical standpoint), so the negative risk is dialed back just a bit.
Fannie 4.0s are back up 1 tick on the day at 103-08. They’d fallen to 103-06 at their weakest levels just over 10 minutes ago. Activity is already slowing down for the day.
Already on the Edge of Negative Reprice Risk
If you’re looking at the 2-day charts of Fannie 4.0s, Things look a bit worse than they are due to the narrowness of the range. That said, we’re not fully immune from negative reprice risk.
Fannie 4.0s are unchanged on the day, but down 7 ticks from their 103-14 highs. Some early lenders may have been looking at prices just below that when they generated rate sheets this morning.
The spikiness of the morning highs make the level of risk a bit of a moving target. Things are likely fairly well contained, but we couldn’t rule out one or two lenders pulling the trigger at this point. More developed risk would kick in at 103-05.