2.95% in 10yr Treasury yields had become a bit of a battleground last week.  Even in the week prior, there were two big bounces there (3 if you count Monday's 2.96%).  By the end of last week, it looked like a done deal.  The only catch was that you would need to have tuned out after the initial rally on Friday morning when yields made it all the way down into the 2.91's.  After that, a late morning selling spree took yields all the way back to the proverbial fence (2.95%, in case that wasn't clear).

With that, the current week inherited the task of deciding whether we break or bounce.  Yesterday was little help in that regard as rates continued to hold sideways amid exceptionally low volume.  As trading activity ramped back up today, it was clearly bond sellers in control.  Yields were up to 2.98+ by mid-day and they closed at only slightly lower levels.  Fannie 3.5 and 4.0 MBS both fell by at least an eighth of a point.

Tomorrow brings the 10yr Treasury auction--an event that may have tipped the scales in favor of higher yields today.  It's not uncommon for bond traders to favor higher yields ahead of an auction for a variety of reasons.  Unfortunately, the Consumer Price Index (CPI) follows closely on Thursday morning, and that's an even bigger jumping-off point for trading goals.  In other words, even if we are seeing some tactical weakness ahead of the auction, a strong result for that auction may not benefit us as much as it otherwise would.  For that, we'll need CPI to play ball too.