Wednesday, for the most part, was uncommonly narrow in terms of it’s trading ranges and activity was uncommonly light. This is more true for bond markets in general than it was for MBS, however. That’s NOT typically the case, inasmuch as MBS tend to not move as quickly and aggressively as Treasuries unless there’s MBS-specific market movers to digest. As far as detecting any of those, there were a few candidates, but nothing that leaped off the screens. Possibilities include:
1. Supply ganging up on demand just after the Treasury close.
2. Technical levels being hit, both in terms of outright prices (102-28 had been holding firm until then) as well as spreads (MBS broke their previous post-QE3 wides vs 10yr Treasuries)
3. A shadow of a doubt that MBS could have read something into the Bernanke Press Conference in that he introduced the concept of a sliding scale of bond buying based on changing economic conditions. Though very different from a complete plug-pulling, this perhaps made it seem like some abatement of QE buying was sooner at hand than previously thought, even if balanced out by the “baby steps” qualification.
Once the jig was up, 102-18 quickly emerged as a friendly little midway perch between 102 and 103.
Perhaps more than anything, we were facing an incredibly sideways Treasury trade that quickly showed it’s hand with weakness after the 3pm close. MBS didn’t really start having problems until then anyway. It’s an easier time of day for one side of the market to gain the upper hand on the other, and a less typical time for the Fed to be a big sponsor.
Thursday brings the most robust day of economic data of the week by far. There are Markit Purchasing Manager’s Indexes all across the Eurozone during the overnight session and a smattering of ancillary reports before the domestic session. Jobless Claims leads off at 8:30am, expected to show 342k vs 332k previously and fresh off it’s specific mention in Bernanke’s press conference, is the biggest report of the morning. FHFA Home Prices follow at 9am with the relatively more important Philly Fed Index and Existing Home Sales reports printing at 10am.
If this glut of data (assuming some of it is interesting) fails to motivate much movement, we’ll have solid confirmation that we’re transfixed by Cyprus, utterly and completely. Even before the luxury of such information, we’d guess that anything but exceptionally deviant econ data or headlines concerning Cyprus itself would have a tough time causing too much movement ahead of the weekend. Even if markets are numbing to Cyprus, they still want to see what happens when banks come back on line next week, assuming tape-bombs aren’t seen before then. MBS look like they’re smack dab in the middle of a 1 point range until the next big move.