Mortgage backs seem to be the only instrument holding their own as we enter the final hour of trading. The 10 year note (down 14/32’s to yield 3.70%) and stocks (closing down 23 points as a late day slide developed) want nothing to do with the Fed. In our opinion, the part of their statement which referenced the purchase of 1.1 trillion in mortgage backs has caused the spread between MBS and Treasuries to tighten, evidenced by the current print of unchanged to down 2/32’s, depending on the note rate.
That’s the good news.
The not so good news is the technical set up going into tomorrow. With an outside day down structure on the 10 year note chart, further selling to test support is a layup. Expect to see the market test the 3.72% to 3.75% yield mark. That level will be crucial. If we hold, a nice rally or at least stability will develop. If that level is violated, especially on a day end closing basis, the next stop will be 3.85% to 3.90%. So for now, the price change alert is off but caution is still advised.