MBS opened and traded the AM at their best levels of the day with Par on the 4.5 even couched in a supportive guise.  But as the noon hour approached, it was back to yesterday's closing levels for MBS as profit taking came, saw, and kicked a moderate amount of posterior right up until the auction.  During the same time, Tsy's opened with similar strength, and backed up even more than MBS relative to yesterday's close of 3.81, but at just over 3.82, not by much.

The pre-auction selling was not such an unfamiliar circumstance, but the lack of volatility thereafter was.  Bonds rallied immediately followed the auction and never again came close to those weak points of the day.  In fact, they put in level after miniature level of support as MBS pushed back to close at 99-30 with tsy's cracking the 3.8 band of resistance in the 10yr to close at 3.788.

Depending on what section of the market you choose as your metric, volume either remained low or was only slightly better than yesterday.  Cash market tsy's were up a bit, whereas futures--credited with driving unprecedented demand among direct bidders in today's auction--were down slightly. 

The auction itself wasn't amazing, but neither was it horrible.  With tomorrow's jobless claims the only data left for the year, and on a shortened trading day, today's auction was effectively the last shoe to drop in 2009.  So maybe you want to call this "unwinding of concession" or a "relief bid" in the bond market, but anyway you slice it, there's still not enough participation nor hours remaining in 2009 to draw meaningful conclusions about anything that takes place in 2009.  Most simply, in the absence of anything decidedly negative, strength over the past two days merely extended.  It is what it is, and not something to be too excited about or that gives us any clarity as to "what happens next." 

If it's not beaten-like-a-dead-horse clear by now, we're STILL waiting for 2010.  I suppose if you were a Freddie Mercury fan (and who isn't?!  Am I Right?!) you could sing the tune "Nothing really matters... Anyone can see... Nothing  '09 matters to AQ and MG."  Not trying to play the "get out of analysis free" card we've been saving since landing on Community Chest 4 turns ago... Just being realistic. 

That said, data is data, and although this is a longshot, an unbelievably deviant reading on Jobless Claims tomorrow could still do SOMETHING.  But we're stretching...  A lot...  Still, we'll be here tomorrow for the half day with the focal point ostensibly on Claims at 830AM.  The only other moderately interesting update tomorrow will be the last Fed Balance Sheet of the year giving us the 2009 Grand Total for the Fed's MBS Purchase Program.  After that, we'll be scrambling to put the sharpies to our posterboard to see if this is FINALLY our year to get Seacrest to notice us...  Since our American Idol duo didn't do the trick, we're hoping the New Year's celebration will lighten his spirits.