The prevailing theme is unchanged in the interest rate market today. Choppy range bound price action with trading strategy focused on selling into strength and buying on dips.  Earlier in the day, that "buy on dips" theory was tested as 10s approached 3.68%, however the supportive confines of the range held strong and rates bounced lower.

The 3.375% coupon bearing 10 year Treasury note is -0-08 at 97-19 yielding 3.67%. Still poking and prodding at supportive pivot points...

When we zoom in on 10s, we can see positive progress has been made since early morning rate highs were hit. This is apparent via lower yield lows and lower yield highs aka a downward trend channel. 3.67% is blocking progress at the moment though...

In that regard, perhaps the stock lever will give 10s the boost necessary to break 3.67%. The stock lever has shown signs that a possible reconnection is in process, but evidence of that is minimal and it could be a function range perimeter fences preventing further weakness (strength in stocks). The S&P's inability to hold gains over 1,100 has helped out a bit already....a move back above that level could stall further positive progress in rates.

"Rate sheet influential" MBS coupons are behaving in a similar manner as their benchmark big brothers. A positive trend channel has formed. Higher highs and lower lows. Just for the fun of it, I guesstimated where I thought the FN 4.5 would end the session...at 100-30. This implies I believe 3.68% support will hold in 10s and MBS prices will migrate toward status quo levels.

The FN 4.0 is -0-07 at 97-25 yielding 4.214% and the FN 4.5 is -0-06 at 100-27 yielding 4.418%. The secondary market current coupon is 4.387%.

Next week the Treasury will auction $81 billion in 3s/10s/30s. Here is the schedule:

TUESDAY: 3-year note in the amount of $40 billion, maturing February 15, 2013;
WEDNESDAY: 10-year note in the amount of $25 billion, maturing February 15, 2020;
THURSDAY:  30-year bond in the amount of $16 billion, maturing February 15, 2040.

This is $1billion less 10s and $1billion less 30s than anticipated. Not a huge supportive influence in the short term, but helpful in the long term. Of particular interest was the following statement made in the text February 2010 Quarterly Refunding Release:

Over the last two years, Treasury has responded to increasing marketable borrowing requirements in a deliberate manner, consistent with our operating framework of being regular and predictable. In addition to increasing issue sizes of coupon securities, several maturity points were added to the auction calendar and the frequency of coupon auctions was increased. 
 
Treasury believes that auction sizes are at levels that give us the ability to adequately address a broad range of potential financing needs, while allowing the average maturity of debt to gradually extend.  As such, Treasury anticipates that nominal coupon auction sizes will stabilize at current levels. Going forward, we will continue to monitor projected financing needs and make adjustments, as necessary.
 
This decision on nominal coupon issuance does not extend to the Treasury Inflation-Indexed Securities (TIPS) program. As indicated at the August and November Quarterly refundings, TIPS issuance will gradually increase going forward.

Plain and Simple: while Treasury issuance remains elevated at high levels, issuance size is not expected to continue to grow.  Again, this is not a huge supportive influence in the short term, but it doesn't make supply/demand matters any worse than they already are....

After weathering a storm of better than expected econ data over the course of the last few days, benchmark rates are now teetering on a range breakdowm. In the short term, the outer limits of the range are holding, keep a watchful eye on a reconnection of the stock lever though.