• FN 4.5's up 6 ticks at 100-05
• 10yr Tsy Up 4 ticks at 3.8457
• Down and S&P up about a quarter of a percent

Look for a test of 3.855 coming up shortly in the 10yr note.  If that's broken, there's some more potential support at 3.87 even before heading up to test 3.88 again.  Just as was the case last night and this morning, 3.88 is the critical level to hold in treasuries if MBS are to benefit.  The significance of technical levels at 3.84 and 3.88 is easily seen in the chart below, but baby (bond market?) looks to be getting backed in to a corner by a trend of "higher low" yields seen on the white line.

That white line is suggesting something higher than 3.84 as a closing level and as the lower limits of an uncertain range tomorrow--with upper limits hopefully at 3.88.  Data and flows could conspire to push things out one side or the other, but for in a data-vacuum, that's the new range until the next big shift.

MBS highs are similarly trending lower, and lows are leveling off just over 100-03.  That looks like one of two things to us: either the first signs of a parabolic reversal toward lower prices, or the late-day loss of drive on characteristically lower volume and liquidity.  If it's only the latter, perhaps we're looking to test 100-03 for support just as treasuries test something slightly north of 3.85.

IMPORTANT TECHNICAL ANALYSIS NOTE: just because yields break north of the nice flat line resting on 3.84 doesn't mean the trend is shifting.  If things snap back under 3.84, any instance of higher yields at the moment will be seen, in hindsight, as a "PROBE" into higher yields, but a failed probe.

It's a bit too soon to call that for today and likely of small significance compared to whatever tomorrow holds.  From a bearish stance, we've caught a bit of a break today when things could have gone worse.  But from the bullish standpoint, "waiting and seeing" has an equal chance of paying off to whatever extent a 10yr treasury yield is equally likely to test 3.82 as 3.88.  I'm not sure which test is more likely, but until the 10yr yield meaningfully crosses back OVER this morning's low yields, I'd probably lean on another test lower before higher.  Sadly, things may be well over 3.85 before most of us would have a chance to lock tomorrow.  Them's the risks, and that's why we gut flop. 

Speaking of that, what is your gut telling you about whether 10's test the higher or lower range?  Does this morning's test of 3.83 constitute our "only shot" at gaining admittance into a relative "yield basement?"  Whatever the case, I wouldn't take too many risks.  The recent historical upsides in MBS (100-08 and 100-13) don't seem to justify the risks of recent downsides (99-08 and 99-22).  That doesn't mean we're more likely to go one way than the other, but just in terms of "risk vs. reward," unless tomorrow brings some directional optimism for bonds, I'd continue to advise staying safe on everything but those deals you're willing to risk a not-insignificant downside for a mildly significant upside. MORE LOCK/FLOAT THEORY