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We've been here before! We've seen bond bearish NFP prints, we've seen tons of "better than expected" data, we've watched stocks rally on and on and on and on. Yeh...and the whole time rates went on about their business, minding the limits of their "fenced in" perimeter. RANGE BOUND. I suppose there is a new dynamic in the current environment: the range has moved higher...from 3.27-3.50 to 3.57-3.85. I am not feeling so hopeful for a return to the days of 3.36 pivots and 3.42 support. It looks like those days are behind us. We are now battling whether or not to hold steady inside the 3.57-3.68 fence or to head higher into the 3.71-3.85 range. The 3.71 to 3.85 range will bring about higher mortgage rates. The 3.57-3.68 range leaves mortgage rates right about where they sit at the moment. (Which really doesn't matter all that much in the housing demand function. Rates are already low. We need jobs to boost the housing market) ...

Someone snuck into bond market central today and stole the volatility right out from under our noses. Afternoon trading ranges have adhered beautifully to the two levels that have proven the most significant for the last four months. That will be shown on the chart of current action by the two red lines. But we have to cram a bit more onto said charts owing to additional interesting visual representations of our reality over the last few days. In short, you'll see 3 different isolated events and the effect they had on trading in a short period of time. In this way, we can see who the big dogs are. It may be more appropriate to say "who the big dogs were this time around," due to the fact that roles could have been reveresed or otherwise shuffled if they deviated from the mean by the right amount and in the right direction....

After falling abruptly this AM on better than expected economic data, the range in MBS and tsy's moderated into levels that left fannie 4.5's down only 5 ticks on the day. Earlier, they had been down over 10 ticks. But in the same way that prices have riden a trend of improving lows, so too have they been capped by lower highs, unable to break through resistance offered by yesterday's closing levels. After dropping to it's lowest levels of the day during the bond rally around 10AM, the S&P rallied, turned positive, and is now continuing it's push into multi-month highs. The index is currently just over 1052, which is not doing anything to help the bond market. ...

With prices hovering nearly a half point over par in 4.5's, these are the best levels since 7/31/09 which closed a scant 5 ticks higher at 100-20. Before then, you'd have to go all the way back to July 10th to see higher prices. But what's the risk that current trading is merely another iteration of the high side of the summer range bind? Or that once Class A settlement hits in a few weeks that the resulting price drop will leave us in the exact same range? Unknowns aside, we do know that today's gains are by no mean a definitive break of the trend, especially when viewed in the context of the following chart....

Considering that the opening commentary rather casually discussed a 10 tick drop in prices, it occurs to us that this might cause a certain level of concern for some of you. So although the market is behaving much as we'd expect in the presence of what we see as relatively uninspiring data--choppy, range-bound, supply-driven flows, giving the impression of being data driven only as an excuse to kick off movement and reverting to the recent norms shortly thereafter--we thought you'd appreciate the following update....

Attention Freddie Mercury! Answer a question for us please. We occassionally mention not to place too much significance with trading that occurs on Friday afternoons after the 3pm Marking as it tends to be illiquid, low volume, and generally lifeless. Going a step further, one might even make a case for NOON being a more appropriate cutoff time. I used to think our friends on Wall St. were joking when they'd say "everyone leaves at lunch on Friday's," but the more I have occasion to observe Friday through Monday price action in the absence of data, the more I see it might not be such a joke after all......