Looking at the day over day price changes tells one story today.  MBS 4.5's ended up 6 ticks at 100-13 and the 10yr tsy yield dropped 5 bps to 3.74.  Not a bad day overall, but the intraday flows tell a different story.  The question is, what does it mean for tomorrow and beyond...

After a strong morning , MBS squared everything up before the 30yr auction by coming in line with the higher end of their range from late Wednesday.  Treasuries fared slighty better as the 10yr yield never made it to their late afternoon levels, but certainly weren't prepared to extend a morning rally much past Wednesday AM's high yields. 

Once the auction results hit, it was enough for both sides of the market to catch the bid and even give a convincing head fake that something special was going to happen.  It didn't.  When confronted with longer term range boundaries--3.71 in the 10yr and just over 100-19 in 4.5's--bonds turned tail and headed back towards the safety of the recent range.  The slightly longer term chart below tells the story.

In other words, the combination of this AM's ambiguous data and the healthy 30 year auction was good, but not good enough to nudges bonds out of their ever-more-established 2010 range.  The technical action in MBS took the form of an improving trend channel by the time AM data and post-auction volatility is factored out.  Tsy's, which had been stronger in the AM, were slightly weaker in the PM as the 10yr bounced once at 3.74 support (derived both from AM low yields and yesterday's first post-auction low yield) before breaking through briefly and finally coming to rest right on the level itself.

The longer term, bigger picture challenge to the 30yr bond's 100 month moving average and the 3.80 technical level in the 10yr was easily fought off today.  But beyond that, the incremental positivity wasn't good for much else than to reiterate the range and suggest further subjugation to data and events.  The last of that data for the next 3 days comes tomorrow morning most notably in the form of CPI.

But the other data can certainly team up to create some directionality.  Here's the full docket:

  • 830 - CPI and Empire State MFG Survey
  • 915 - Industrial Production
  • 955 - Consumer Sentiment

As mentioned, with burgeoning focus on inflation, a worse than expected CPI print would constitute at least one sizeable vote for movement back towards weaker parts of the range for bonds.  But there may be a bit of room only for a SLIGHTLY worse than expected reading owing to the decline in the consensus increase to .1% from last month's .4%.  Chalk that up to a big drop in energy costs during the intervening 30 days. 

Considering that the decline is already baked into the consensus, and rightfully so we think, there's little else to offer by way of crystal-ball speculation.  The event not quite as squarely on the radar is a speech by Fed's Lacker (Richmond - non-voter) at 1230 in his native VA on the economic outlook.  Not likely to drop any bombs, but fed-speak is fed-speak and anything can happen. 

Locking or floating is a difficult proposition given the very new, very narrow range in 2010.  Are we more than halfway back to the weaker parts of the range (which would suggest floating)?  Or have we had enough strength of late that we remain far enough into the positive side of the range to merit some locking this afternoon?  Lock triggers seem most logical at 100-04 to 100-06 in MBS and an almost too-close-for-comfort 3.76 in the 10yr tsy (inasmuch as MBS is pacing and duration-matching along the curve). 

If there were hours left in the day and we were this far from those triggers, the floating decision is easy, but considering that data will have come and gone and prices can be quite different by the time rate sheets come out tomorrow morning, only you can decide if there's any comfort in rolling those dice overnight.  Keep in mind, it's a 3 day weekend with no trading on Monday.