Though the low volume seen today did give way to a somewhat choppier than normal session, the end result for Tsy's and MBS was positive with the 10yr Tsy improved 11 ticks (yield 3.61), and the 4.5 gained 8 ticks to close at 99-18. Keeping somewhat of a lid on further FI gains were rising stock prices with the Dow up 104 and the S&P up over a percent--nearly 11 pts--from 940 to 951. Early stocks gains resulted from better than expected LEI, decent earnings, and CIT's bankruptcy evasion. Fed buying, as usual, was plenty to help offset the modest $1bln+ originator supply, as well as some lower coupon selling from hedge funds who then moved up in coupon to, themselves, offset the the supply from money managers taking profits on fuller end of the stack.
You're best wrap on "why the rally?" can be found here: An Explanation So Good, Even The Guys On MND Linked To It! Linking to it is something people on the internet should do to give author(s) credit without representing it as their own... Oh wait, it was ours in the first place 
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As long as you've read the link above, you're more or less up to speed on today. We'll bookend that with some charts and thoughts. First, The 2 day composite. Note the "whippy price action" we suggested would happen this AM and that the 3.59 yield level in the 10yr we suggested for "retests" was indeed the most danced-around level of the day:
Now it may be obvious about the "others" mentioned in the title, as you can see the S&P reach into heady levels. To get a true appreciation, we have to zoom out to a longer view.
You can see we cracked the previous highs, something we were hoping wasn't going to happen. But wait! There were gains in MBS, so is it still bad? Definitive answer: maybe. Tsy's and MBS improved, but look where they ended up... The 10yr still sits higher in yield than the internal level of 3.55 represented in ominous teal. And MBS hasn't yet cracked 99-19, an internal trend itself that we haven't been over since late June. But other than the fact that 99-19 has been tested more frequently than any other price as either a high or low in the last few months, what's so special about it? Check out the following chart with high and low retracements placed on this year's highs and lows:
If you don't normally spend a lot of time with retracements and/or speedlines, this might not look like much. If that's the case, just try to notice how frequently prices bump into these lines either as a ceiling or a floor. Notice that 99-19 just happens to be the exact 50% retracement for the year, that it was a serious floor and ceiling recentlyand even roughly coincides with a major turning correction's floor in late 08. This may all be coincidental voodoo, especially considering MBS are a spread product and thus less obvious of a choice for technical analysis (because one would be more concerned with charting the benchmark product itself--treasuries). Nonetheless, when you take a look at the historical signficance of the other speedlines, it does seem that there's slightly more rhyme and/or reason to these than the possibility that they mean nothing at all.
Cue audience sound effect in 3,2,1, go: "So what!?"
Much of the market is focused on Bernanke's two day testimony beginning tomorrow. It's not a bad thing to pay attention to because anything's possible, but more likely than not, old Benny Boy won't deviate much from that which has already been made plain in the most recent minutes, which we dissected already.
Basically, fundamentals are out the window at the moment, with flows and techs ruling supreme. That being the case, don't expect linear reactions between what you think news or data might suggest, unless of course the suggestion coincides with the decisions of traders or their models. Hopefully you've been able to see over the past few months, as this phenomenon has become more and more apparent, we've evolved our analysis to take it into consideration. With that in mind, there are mixed signals for tomorrow. Stocks broke big resistance, but not only would need to confirm, but also, are less and less likely to continue up without a correction, even if it's only modest. MBS have support from the uptrend created by the june 18th and july 15th lows, but are bumping into the ceiling at 99-19 (50% retracement). One thing's for sure, still every reason in the world to be defensive.
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