After rallying for the first 1.5 hours of the day, Treasuries abruptly lost momentum owing to a lack of sponsorship below 2.24. Where else to go then, besides back from whence they came? 10's have done exactly that and just put in a bounce at yields roughly equivalent to opening highs near 2.28.

While 4bp swings in both directions inside a 3 hour time frame speak to the relatively more volatile morning, MBS are doing much better by comparison. Fannie 3.5's are down only 2 ticks on the day at 102-12 and unlike Treasuries, haven't ventured back toward their weaker levels of the morning in the lower 102's.

Pending Home Sales was a non-event in terms of market-movement this morning, as Treasuries and MBS are opting for a range trade against the backdrop of the lightest day of scheduled events this week.

We're not too troubled by Treasury weakness if it continues to find support at 2.29 or below as the 2.29-2.26 zone is our leading candidate for THE pivot point of the "new range." Really, anything between 2.29 and 2.21 is akin to a more equivocal range-trade between what are generally regarded as the extremes of the new range at 2.1-2.4. Maybe that's why MBS aren't too troubled by the Treasury weakness either (psychologically speaking). Stay on guard against a 10yr Treasury move into the 2.29's though as we'd expect MBS to reconsider their resilience in such an event.

* - 0.5 % vs consensus +1.0 pct

Pending home sales were down slightly in February but remain notably above the pattern in the first half of last year, according to the National Association of Realtors®.

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, eased 0.5 percent to 96.5 in February from 97.0 in January but is 9.2 percent above February 2011 when it was 88.4. The data reflects contracts but not closings.

Lawrence Yun, NAR chief economist, said we’re seeing the continuation of an uneven but higher sales pattern. “The spring home buying season looks bright because of an elevated level of contract offers so far this year,” he said. “If activity is sustained near present levels, existing-home sales will see their best performance in five years. Based on all of the factors in the current market, that’s what we’re expecting with sales rising 7 to 10 percent in 2012.”

The PHSI in the Northeast slipped 0.6 percent to 77.7 in February but is 18.4 percent above a year ago. In the Midwest the index jumped 6.5 percent to 93.8 and is 19.0 percent higher than February 2011. Pending home sales in the South fell 3.0 percent to an index of 105.8 in February but are 7.8 percent above a year ago. In the West the index declined 2.6 percent in February to 99.3 and is 1.8 percent below February 2011.

Although "turning negative" isn't a major development for the Chicago Fed NAI (it was negative as recently as Novemeber and has crossed between positive and negative 5 times since 2010), it does break a trend of recently stronger growth.

Both Dec and Jan showed two of the largest deviations from the Indexes "average growth" level of 0.00, coming in at +0.66 and +0.33 respectively. Today's -0.9 breaks that recently positive trend.

Despite that, folks who care about this report tend to also look at the 3 month moving average with actually improved this month due to November's weak reading being replaced with today's "less weak" reading.

Chi Fed notes production-related indicators led the decrease.

Bond markets held within Friday's trading range throughout much of the overnight session, despite better than expected data on the German economy (IFO Business Climate Index improved marginally). Volume remained fairly light and markets seemed to be waiting for guidance until they received it from news that Germany was, "poised to bow to international pressure and allow a temporary increase in the eurozone’s financial “firewall” this week, to prevent the crisis in the region’s periphery spreading to other member states," according to the FT.

The range in 10's subsequently broke higher and the defensive line held at 2.26+ quickly gave way to a test of 2.29. German Chancellor Angela Merkel was the first to moderate the "risk on" response to the news in clarifying that only €200 bln of the EFSF is being considered to run in tandem with the €500 bln ESM. The earlier news mentioned total firewall capabilities closer to €1 trln.

Bernanke weighed in on the domestic employment situation at 8am in generally bearish fashion, helping bond markets continue to dig their heels in, and the lower-than-previous Chicago Fed National Activity Index, didn't disagree with the moderation of yields as the first half hour of the domestic session ended.

10's are back to 2.25's and Fannie 3.5 MBS are down only 2 ticks from Friday's 5pm levels at 102-11. Moving in the right direction so far today...