In this morning's "week ahead" post, we highlighted the previous support seen around 2.04-2.07 percent in 10yr yields and that longer-run economic fundamentals (i.e. where would we be without QE?) might logically suggest similar support could be seen again.  But we cautioned: "Keep in mind that history hasn't been kind to this application of fundamental logic in the short term."  The implication of that "unkindness" was a revisit to the outer limits of the long-term uptrend seen in the chart.  It only took a few hours of trading for that to happen (chart below).   Reprice alerts went out at 10:08 and 10:20am Eastern time on MBS Live, as the Dashboard lit up those familiar "red fireworks" which seem to be a new May tradition.  Sellers dominated right from the outset as domestic accounts weren't a willing enough sponsor to get 10's back below the mid 2.03's from overnight (mid 2.03's were also MOSTLY a supportive ceiling last week, so bouncing on them as a floor this morning was ominous). 

Selling was mostly contained under 2.06 for Treasuries until about 9:50am.  By that time, the previous ground-holding was revealed to be merely short-covering.  Buyers were nowhere to be found, and MBS convexity selling (lower coupons falling more quickly) was clearly adding to the snowball.  Fannie 3.0s were over a point lower than Friday at their weakest levels, while Fannie 3.5's have been about 5-8 ticks better off depending on the time of morning (and they're now more than 3 points higher than 3.0s, solidifying them as the new current coupon for now).  Stronger Consumer Confidence data merely added fuel to a fire that was already burning.  Without it, we might only be off a bit more than half a point instead of hovering around a full point, but the negative bias in rates is clear.  Here's what this morning's weakness has done for the long term trend in Treasuries: