Quite a lot of “sparkle and fade” regarding the HARP 2.0 pre-announcement this morning. Or is it a pre-pre-announcement? Either way, the finer points won’t be out until November 15th, but it seems like the amount of information that made it out this morning was more than markets were expecting. Thus the extent to which the program was “priced into the market” seemed briefly in question based on how MBS were traded this morning–namely: MUCH WEAKER VS BENCHMARKS! Either it was a calculated fade (an intentional head-fake by traders), or as the issues were discussed, they seemed progressively less threatening throughout the day, allowing spreads to come back down into recent ranges. Here’s a look at the MBS Current Coupon vs 5yr Notes, yield vs yield:
I also like how that chart gives a good visual on how the expectations for a HARP release ramped up and caused spread volatility late last week, and now trade a much more narrow range into the afternoon following it’s actual release. Another contributing factor to the spread tightening, though likely not to the same extent as the factors mentioned above, could simply be a general “risk-on” sentiment in the markets ahead of Wednesday’s potential update on a Eurozone solution. While it requires some effort to avoid scoffing while writing such things, I certainly wouldn’t want to have been caught scoffing in front of the steamroller that has been equities over the past few sessions. Regarding a potential test of their pre-2011-crash trading range, SP’s are on the verge of either ringing that bell, or getting their bell rung.
Seems like an awful big swing awful quickly on not an awful lot of news and data. We should soon find out how justified it is or is not. Treasuries don’t seem to be shifting nearly as drastically, still within their post 8/8/11 range, though getting near the scarier side. Thing is, even if 10yr yields break higher here, there’s potential for some serious support at 2.3, 2.35 and/or 2.4.