Bond markets continued to struggle with a decisive break below important technical levels in Treasuries.  Despite holding on to gains in the morning and rallying into the 10yr Treasury Auction, yields simply became choppy around 1.86, a zone that we've discussed frequently in recent weeks and that we highlighted yesterday as a bullish technical target.  While it was tested in the intraday hours, it was not definitively broken.  Here's a look at Tuesday night's chart compared to Wednesday night.

Late Tuesday:

Late Wednesday:

Unfortunately, the possibility remains that 1.865 and the immediately surrounding area, will prove to as much of a long term inflection point as it was on the way down in late 2011 and early 2012.  Less dire, but equally probable is that we won't get a clear technical signal this time around as markets may settle into an indecisive range trade heading into the climax of the debt-ceiling deadline in late February.

Markets were certainly lacking in clear signals on Wednesday as the best that MBS and Treasuries could manage was a mostly sideways session with very slight improvements.  The price positivity in MBS is more a factor of favorable supply/demand technicals heading into monthly settlement.  On that note, Class A MBS (Fannie and Freddie 30yr Fixed) "rolls" on Thursday afternoon, meaning that Friday morning's MBS prices will refer to February coupons.  This will makes prices look like they've dropped 8-10 ticks, even if they're perfectly flat.  

Earlier in the day, we get the first piece of upper-shelf economic data for the week in the form of Weekly Jobless Claims in the morning.  There's also a relatively less consequential report on Wholesale Inventories and Sales out at 10am.  But before any of the domestic data is released, we finally have a potential European market mover back on the radar after what seems like "too long" without any "Eurodrama."  That's not to say that drama is necessarily expected, but Thursday morning's ECB Announcement at 7:45am and Draghi Press Conference at 8:30am always have the potential to set the early tone for domestic markets.  The afternoon brings the last of the week's Treasury Auctions with 30yr Bonds at 1pm.