• Fannie 4.5's up 8 ticks to 99-17
• 10yr note at 3.5956, down from 3.988 yesterday.
• S&P Rose 2 points
• Even more significant auction tomorrow with the 10yr at 1pm.

It was touch and go for a while after the much-anticipated 3yr note auction.  Bonds had weakened all morning leading up to the auction, and losses continued for a short time following.  But the markets were only willing to go so far before the FOMC minutes and a we caught enough of a bid to bring things back in line with pre-auction levels just before 2pm.

But also occurring just before 2pm was a stock rally that brought the S&P above some key technical levels (and all within that 2 pt trading range!).  Given that this happened on low volume lessens the certainty that bonds were responding to that stock rally, but that's one of our guesses, combined with the drop in yields coming back to technicals from pre-auction high yields.  Whatever the case, things looked pretty bleak, but we held out for very low risks of reprices for the worse.

Again we have a morning on the horizon with not much econ data.  Fed's Dudley speaks at 12:15pm, and then the mighty 10yr auction at 1pm, infinitely more important to MBS than the 3yr.  Keep in mind that ALTHOUGH MBS and treasuries are becoming more disconnected as spreads begin to widen back out, big losses in 10yr notes would almost certainly mean big (though slightly less big) losses in MBS.  In the same way, big gains in the 10yr would likely see MBS gain something slightly less than big. 

If you're holding out for 1pm tomorrow, we'll be all over it if thinks tank immediately following the auction.  Stay tuned!  Fun Times!