• MBS FN 4.5's are up 1 tick at 101-11
• 10yr Tsy yields opened up nearly 5bps lower at 3.49 and have since backed up slowly and steadily to roughly 3.52
• Stocks open lower, but S&P finding support at yesterday's lows near 1150
• 2 day trends are actually BULLISH for bonds, despite bearish concerns

With only low-tier data out so far today, the focus moving forward should be on the 3yr note auction.  Recent bullishness in bonds, in general, is generating some concern/expectation that the auction could be slightly weaker than expected (if not much changes today) or merely "on the screws" assuming that traders can push yields a bit higher heading into the auction.

A little "hangover" for the EU bailout bandwagon party left Asian and European stocks lower in the overnight session.  Volume remains strong vs. recent averages, but much lighter than yesterday.  Weakness on the equities side was met with strength in bonds with the best levels seen early.  Since 8am both MBS and treasuries have moved steadily weaker, effectively from the better extreme of yesterday's trend channel to the weaker extreme.  Take a look:

Treasury futures do a pretty good job of showing a longer term bull trend.  According to this chart, in conjunction with the short term treasury and MBS charts above, yesterday's weakness was NOT, in fact, a shift to lower prices/higher yields, but merely a move back toward uptrending support.  Plenty of room on either side of the trade here, even within this relatively narrow trend channel.

"uptrending support" can be thought of as a line that connects a series of higher and higher "lows."  One thing we know about uptrending support--especially in markets like bonds, is that it will eventually break.  This AM as well as any ongoing weakness due to auction concessions (or the auction itself), is our first good chance to test these support levels since things went ballistic last week.

Another complicating factor could be the stock lever, which we expect to remain generally more pertinent.  If the below support level indeed holds up in stocks, and if the auction set-up/results allow it, Stocks may be inclined to go higher before breaking 1150.  More likely than not, this would coincide with more meaningful testing or even a clearcut breakout of the supportive uptrend in the treasury futures chart above.

Watch the 10yr for testing/breaking a roughly 3.55 level. 

101-10 (ish) would be an equivalent level for MBS with critical support at 101-05. 

The S&P would need to clear 1164 to break free from yesterday's rang.

Bottom line, when we sprinkle in some fundamental considerations, out short to medium term stance on "locking in recent gains" still feels right.  If the auction is surprisingly strong, and talking heads add any additional dismissive tone regarding Greece EU, yesterday's trends of improvement could "hold up" at the very least, or even retest the bullish trendlines at best.

We don't see much "facemelter rally" potential for today, but no clear indications of "impending selloff" either.  stay tuned to the above mentioned levels for ideas on when to get more or less aggressive with your pipeline, and as always, we'll do our best to get auction results to you ASAP.  Please remember that if you do NOT see a posting within 10-15 minutes after the auction, that's usually a GOOD sign as it indicates a relative decrease in risks of reprices for the worse.