Blah blah blah rates higher blah blah blah outside the range blah blah blah Treasury supply blah blah blah tactical considerations blah blah blah  holiday distractions blah blah blah low volume blah blah blah exaggerated price action blah blah blah  lack of strategic bargain buyers blah blah blah  waiting for January 7, 2011 blah blah blah.

Plain and Simple: benchmark 10s have crept outside the confines of the recent trading range. This is playing out ahead of Treasury auctions next week and is seen as a tactical ploy to profit from the day trading sentiment of a holiday distracted marketplace where low volumes tend to distort reality and create chopatility. We have noticed a clear lack of demand from strategic bargain buyers who appear to be waiting for confirmation that the November Employment Situation Report was not a downside dud. This confirmation will be offered on January 7, 2011 when the Bureau of Labor Statistics releases the December Employment Situation Report and revisions to the November data. 

Blah blah blah = noise

Don't get it twisted. This outlook is for the "here and now". I don't want to make it seem like we're brushing off the fact that we've witnessed a massive herding of economic forecasters onto the optimistic side of the fence recently. I don't want to make it seem like we're discounting the fact that more and more predictors are following the herd that sees stronger stocks in 2011. Do not take that message away from my blah blah blahs.

MY POINT:  The message we shared in this post, Rationalizing the Spike in Mortgage Rates with No Rationality At All, is still very relevant. UNCERTAINTY continues to prevent the bond market from making a strategic investment decision. Real$ is still parked on the sidelines...waiting until January 7th for more guidance. This leaves day traders and dealers to dictate directional behavior in the meantime. With that assumption firmly rooted in your short term outlook, because the week ahead holds TSY supply, it makes sense that yields would be rising today in a concessionary effort against the Treasury.

I haven't even looked at loan pricing today. Were lenders naughty or nice? Not that it matters...not too many folks are aggressively adding loan production at this point in the month.  When I still had a pipeline to manage, on days like this, my first urge was to juice up the previous day's pricing (add margin), shift the desk into autopilot, and enjoy the holiday atmosphere by taking an extra long lunch before making an early run to the exit.

Here is an update on the market....

The bond market unplugs at 2pm but it might as well already be closed because activity is pretty dull. However, in watching the globex trade log we've noticed what seems like an automated buying interest as the 10 year notes cross through 3.38%. Unfortunately this has mostly been a function of short covering and is not an indication of real demand. Nonetheless it is still helpful in slowing the pace of price declines. Trading volumes are VERY light.

$35 billion 2s on Monday

$35 billion 5s on Tuesday

$29 billion 7s on Wednesday

Our "OUT OF OFFICE" autoreply is about to go up....the bond market is closed tomorrow and won't reopen until Monday. HAPPY HOLIDAYS!