After shedding 10 ticks from 101-30 to 101-20 in literally a few blinks of the eye, 4.5 MBS have pushed back up within a tick or two of that level.  10 yr tsy's, after backing up to 3.45, have pushed back down to 3.42 pivot.  But there is a dark cloud on the "rebound horizon."  Can you see what it is?

Keep scrolling down, the clue is in the next chart

Even in the chart above, the "clue" is a bit buried.  I wanted to overlay stocks and tsy's so you could see that the stock lever has been firmly attached since the auction.  If you don't see what I mean by that, let me know and we'll put together a chart starting at 1pm which shows it more clearly.  To really see the impending liklihood of events, you may need to remember recent discussions about 1087 in stocks.  This has been the lower end of the range for about a month, and the lower boundary that defines the epic "flag" in the S&P.  Let's take a medium sized view at said "flag".


So the bottom end of the range in stocks appears to coincide, at the moment, to the 3.42 pivot point in tsys.  Despite a fairly rapid rally in MBS and a concomitant fall in tsy yields, due to the fairly healthy connection of the stock lever, one would have to wonder if either market can go any further unless stocks continue to fall through support.  And one would ALSO have to wonder how likely it is that we would see movements outside any established ranges with yet another auction to come tomorrow.  I'm implying something here....

Bottom line, bonds are down, but not out as they show a willingness to recover as long as stocks are playing ball.  Look for the lever to remain pertinent in the absence of data this afternoon.  All of this also tells us that bond markets are aware of the importance of the range in stocks and are prepared to capitalize if it seems that stocks may finally undergo that "correction" that everyone's been discussing for about half a year (you know, the one that hasn't happened yet?!)  We'll let you know if the range breaks, but don't hold your breath unless you see stocks move under 1087.