What is a “dip buyer?” A “dip” refers to a drop in the price of an asset in the financial markets. In this case, a dip in bond prices would correspond to the recent rise in Treasury yields. Dip buying would actually be better described as “yield spike buying” because the important technical levels that can often serve as cues for Treasury buyers are always identified in terms of yield (different story for MBS).
Back in June, 2020, the two big yield spikes topped out at .932 and .959. More recently, .975 was the highest ceiling (4 weeks ago after the Pfizer new), and they’ve come close on at least 5 other occasions in November. This behavior speaks to a general truth of big-picture technical levels: they’re often best thought of in terms of a “zone” as opposed to an ultra-precise line in the sand. In other words, we’re dealing with a zone between .932 and .975. Any ceiling bounces that occur in that zone are effectively sending the same message.
To be sure, yields will almost certainly see what life is like above the 1.0% mark at some point, but the longer that can be delayed (or the slower it is to materialize) the more equipped MBS will be to continue outperforming and thus the better able mortgage rates will be to show few–if any–signs of the bond market weakness. Indeed, despite the clearly negative trend in Treasuries since August, mortgage rates are still right in line with the August 4th all-time lows.
Outperformance has a limit, but due to wide lender margins, the limit will first be seen in MBS. The tipping point for mortgage rates is far enough away that we only really need to watch broader bond market momentum for signs of big-picture shifts. On that front, there’s not much to do (or to be concerned about) unless the technical zone at .96-.975 is challenged or broken. Until then, it’s simply a waiting game.
Today’s big to-do on the econ data front will be the 10am ISM Services (non-manufacturing) index. Data has had a limited impact in general, but intraday reactions are increasingly common as traders feel out near-term economic effects of lockdowns versus long-term hopes for vaccines to change the game. Beyond today’s data, traders sometimes use the Thursday before NFP to take a “lead-off” in preparation for a bigger reaction at 8:30am tomorrow.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
103-22 : +0-01
0.9340 : -0.0120
|Pricing as of 12/3/20 9:17AMEST|
Tomorrow’s Economic Calendar