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Treasury volumes climbed steadily leading up to the auction as fast money accounts (leveraged, tactical, hedge-fund types), covered shorts from 12:40 right up to 1pm. The results were strong with bid-to-cover well over recent averages (2.74 vs 2.6) and the yield award 0.4 bps lower than the 1pm consensus (or the "when-issued" yield levels).

Traders quickly bid the long end up just slightly after the result, but then sold it again,just below the levels at which the earlier short-covering rally began. MBS had already moved up to 102-27 (+0-08) ahead of the auction and are still there, as Treasuries attempt to figure out which way they're headed.

After the sufficient head fake for fast money profit taking, the yield trajectory is heading down again now (we think?). In any event, WI 30's just hit their lows, 10yr yields hit their lows moments ago, breaking resistance, and all of the above should help MBS do the same. This paves the way for potential positive reprices if maintained into the afternoon.

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