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There just isnt enough participation in the rates marketplace to push the 10yr contract through the above discussed layer of "position resistance". Barring a tapebomb before the FOMC statement is released at 2:15pm tomorrow, the best we can hope for is that 10s keep testing this layer of position resistance. On the flip side, in terms of room to run in the downside direction....on Friday there was a hefty amount of "buying at the lows", which put a level of "position support" under 10s. Unfortunately that level of support is concentrated at lower price levels, so there is a possibility that we see more weakness in 10s before the FOMC release. Overall...we are likely stuck in this range until an "event" moves enough money in the same direction to take out positional resistance. Where 10s go...current coupon mortgage-backeds will follow. REPRICES FOR THE WORSE AT 100-20....

The result of the BEAR STEEPENER today has been plummeting "rate sheet influential" MBS prices and REPRICES FOR THE WORSE from lenders. Just like the 10yr note, some sort of "tapebomb" broke down the sideways price range the FN 4.5 was bouncing around. The FN 4.5 is now -0-07 at 100-11 yielding 4.472%. The secondary market current coupon is 4.461%. Yield spreads are tighter vs. benchmarks...but off the early morning tights thanks to a round of selling from originators when prices hit session highs...this prompted profit taking from fast money accounts (hedge funds). The Fed has been the only buyer in size so far today... If 10s test 3.84..."rate sheet influential" MBS coupon prices will fall further. BEWARE......

I have been referring to "Real Money Buyers" on a consistent basis lately. Heading into year end these "real money accounts" have been the most active participants in the Treasury and MBS marketplace. This is out of necessity (and window dressing too). Real Money account's primary purpose of investing is to offset a stream of outgoing cash flows with a stream of incoming cash flows. This is accomplished using the structure of a fixed income investment vehicle (MBS or TSYs). The best way is that their activities have defined investment purposes, rather than speculative activities (which have a minimum time horizon of a minute). These accounts are matching future obligation with a stream of future cash flows. As the expected life of their liabilities adjusts, with the yield curve, real money accounts must manage the expected life of their incoming cash flows....

After the dust settled today, the 30yr bond was down over a point today whereas 4.5 MBS had only lost 3 ticks... There was plenty of sturm and drang along the way, especially for those of you that keep tabs on bond prices in addition to MBS, but taking that familiar cruise up to the 50,000 foot view should provide some perspective why things happened the way they did today and what it might mean going forward... Thursday 10/8 At A Glance * stronger jobless claims send yields higher in AM * bond bulls still prevailed pre 30yr auction * Auction disappoints, duration shedding extravaganza * MBS put the big tightener to the curve (treasuries yields rise a lot, MBS only a little) * Fed buying stays strong * prepare for "plain and simple" on today's auction dynamics ...

3.27 and 3.30 have proven to be pivotal technical price levels in 10yr tsy yields. After rallying last week, all eyes have been on these levels to see if we could hold our ground in these lower yield levels. Today marked the first real test of 3.27 as a ceiling and as you can likely see, we remain lower both at 3pm booking and currently. Just because that's the case today is no guarantee it will be tomorrow, but to see the bounce occur precisely at this level reiterates the technical significance, thus suggesting continued vigilance whenever yields threaten to move higher....

It's not so much that the past three days have been remarkably good for MBS prices, but rather that an extended period of relatively stable bullishness that began in August merely made it two ticks higher than previous. In other words, this isn't so much about something unique happening versus the last four months, but rather about recent data and events giving just a little extra boost to a very narrow range over the last four weeks. Indeed, when you see the daily chart further down the commentary, the rally over the last few days doesn't seem out of place at all in that context. But let's start with today's action:...