At 10am the Institute for Supply Management reported the servicing sector had its best month since October 2007. The Non-Manufacturing ISM index came in at 53.0 in February vs. 50.5 in January. This just beat consensus estimates for a read of 52.8.

By the way...all categories except the business activity index, new orders, imports, and employment are /seasonally adjusted.

The employment component of the survey rose for the third straight month...this time it was up 4 points. That's a healthy improvement. America is not the goods producing sector it was in the WWII era, the services sector will supply the majority of jobs in the future so this employment data is a bit more relevant.  Unfortunately it is overshadowed by ADP data and Friday's Employment Situation Report.  I am hearing whispers for a -150,000 NFP print now...talk about the market setting itself up for bad data on Friday.

Following the release stocks added to gains already in progress and bonds added to losses.

 As you can see from the chart above, weakness was contained and now we're back to the levels we hit following the ADP release. The range is still intact....

 "Rate sheet influential" MBS coupons ARE NOT playing follow the leader anymore. While TSYs are generally weaker (real money buying, fast money selling), the lower wings of the coupon stack are doing just fine. This follows some yield spread widening yesterday, call it bargain buying if you will....either way "rate sheet influential" MBS coupons are outperforming benchmarks today.

The FN 4.0 is -0-00+ at 98-07 yielding 4.172% and the FN 4.5 is -0-00+ at 101-02 yielding 4.383%. The secondary market current coupon is 4.309%. Yield spreads are tighter. The CC yield is 66.1bps over the 10 yr TSY note yield and +61.3bps over the 10 yr swap. At the open the CC was 69.5bps over the 10yr TSY note...yesterday's spread widening has been corrected.

While price action has been choppy, I do believe the range will contain both bearish and bullish momentum leading up to 830am on Friday. My targets are: 3.64% in 10s and 100-28 for  FN 4.5.  If Treasuries do break down the range and yields cross over 3.66%...look for some profit taking and a sharp decline in "rate sheet influential" MBS prices. If TSYs reverse course and head back toward the middle of the range... we could see some reprices for the better.

The yield curve is steeper. Stocks are just off intraday highs. The dollar has lost ground to the Euro.