Treasury traders have had to be quick as a cat , sidestepping the land mines such as China, Fed, Treasury, Capitol Hill, 98 billion in auction paper this week, and Barney Frank lifting their wallet. Less than a week a ago, the 10 year note was trading near 2.50% post FOMC shock and awe. Today, the note is off 15/32’s, trading at a yield of 2.71%. Mortgage backs are down as well, off another 4/32’s from yesterday’s close. Point being, trust is something that traders have little of due to the multitude of moving parts. Kind of like the shell game where you had to guess which shell was covering the ball. I could never win at that game.
Maybe President Lincoln said it best; “ you can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time”. Our market seems to be caught in a period of congestion, trying to thread the needle between auction consolidation and Fed buying of treasury paper and MBS. None of the latter has surfaced so far this week. We believe the slow grind to higher yields, worsening mortgage pricing has nearly run its course.