After a slightly better than expected 10yr auction, MBS succumbed to a back up in treasury yields.  The auction results were not "better enough" to justify the lower yields of the morning's short covering rally in tsy's that saw 10yr yields fall as low as 3.435.  After a few moments of indecision, both markets worsened significantly, but not severely as 10yr yields backed up to 3.5+ while MBS fell as low as 100-31.

At final marking, 4.5 MBS was up 2 ticks at 101-05, still well over critical support at 100-28+, but taking a noticeable step back from resistance at 101-10+, thus setting up an interesting range to watch tomorrow.  The 10yr also did a dance with technically significant price levels after finding support at the long term 3.5 level (also short term in the sense that it was yesterday AM's high yield mark), but encountering resistance by day's end at 3.47+ 

All the while, stocks were moderately directional, but ended the day almost exactly unchanged.  This left long term trends intact and suggests a few different potential outcomes should the stock lever come into play on Thursday's 30yr Auction.

But the extent to which the stock lever remains disconnected is evident when we turn our attention to a similarly long term view of MBS and tsy's.  Both have been generally bullish since summer in spite of rising stock prices.  Trends and horizontally technical ceilings and floors of resistance and support abound...

In terms of the technical movements seen in several of the charts above, as well as a bond market that can lose a few ticks after a decent 10yr auction, it all speaks to a market that continues to adhere to the perennial dictum of range bound movement between technically significant price levels as the market waits for data that proves significant enough to alter the range or the course of trends.  10yr future edifies this further and simply serves as another indication of "fence-sitting."

Another story of competing trends as the upwardly sloping trend of higher low is a chip in the pile of the bond bulls whereas intraday prices bounced, yet again, off overhead resistance at 118-29, the fourth time in a month.

It would be nice if there were much else to look forward to as a driver of Markets on the coming Thursday besides the 30yr auction, but alas...  Given the market's recent preference to actually MOVE following auction and only feign movement on econ data, the long bond auction--if not THE last shoe to drop this week--is certainly the largest remaining shoe.

Some analysts saw today's early strength merely as short covering ahead of a 10yr auction that promised to stop out fairly close to OTR's.  In english, that means that the high yield levels from today's auction were widely expected to be within a fairly tight deviation of the levels at which yields were trading prior to the auction.  In fact, those high yield levels were right on the screws at 3.47... 

So the auction delivers on expectation, more or less, and stacks up fairly well versus recent auctions...  What gives with the leaky yield situation into the close?  Not to be too simple about the whole affair, but in short, a good portion of the buying that would otherwise be elicited by such an auction took place in the hours BEFORE as opposed to the hours AFTER.   Shorts were covered...  A generally steep yield curve was met with a smattering of flattening sentiment.  More shorts piled on to cover with the bullishness, and before you know it, the market is where it wants to be. 

It all sounds a bit familiar to something we read earlier today: " It's possible that yields are more or less "where they want to be" after the necessary short covering at this auction."  So with the 10yr stopping on the screws at 3.470 and going out not even a bp away at 3.476 by 5pm, go ahead and scratch that "It's possible that" part...  Those guys are too timid with their crystal balls... 

Bottom line, accounts had no motivation other than the aforementioned short covering to pile on to the down-in-yield bandwagon.  More than 80% of primary dealers bids were taken at 3.47...  The note went out at 3.476...  No one swings at the 0-2 pitch.  Especially not when Thursday's pitch will offer up an easy home run, or be a ball seen coming a mile away.  In english, dealers have little motivation to chase yields lower after an "as expected" 10 yr auction when the 30yr auction represents another chance for guidance in one direction or another. 

It's just as possible that the 30yr auction will give way to the same sideways range-bind of current infamy, but if there's a chance it will be right over the plate, why not take the epic swings at the pitches that have better chances of making it to the parking lot?

Other notables on Thursday:

• Jobless Claims at 530
• Fed MBS purchases and rest of balance sheet in the afternoon.
• Obligatory additional mention of 30yr auction at 1pm...

Bond market holiday tomorrow...  Stocks and futures will be trading...  Certain lenders may be pricing... But no MBS or tsy price movements...  As such, we might not see you until Thursday morning!