After opening down a few ticks, MBS are up a few ticks as well as the 10yr tsy, however both have come under a small amount of price pressure in the last  few moments.  This isn't much to write home about as it has only accounted for a 2 drop from 101-14 to 101-12.  Meanwhile the 10yr tsy is only 1bp off at 3.48+.  Incidentally, this is the same level as the high end of the long term range, but due to INCREDIBLY light volume, you may not want to read too much into that until we get some more confirmation.

As to how this AM's price action has affected yields and spreads, the FN 4.0 is +0-03 at 99-24 yielding 4.131% and the FN 4.5 is +0-02 at 101-11 yielding 4.337%. The secondary market current coupon is 4.244%. The Current Coupon is +75/10yr TSY and +60/10yr SWAP. 2s/10s are 2 basis point flatter at 264bps.  Yes that's FLATTER (finally)...  Here's the chart in MBS and Tsy's so far:

Elsewhere, other markets are faring better, especially those benefiting from a weak dollar such as oil, gold, and stocks.  Here's a look at the S&P

Despite those gains, caveats persist, such as the 1100 ceiling being in tact and the same small volumes plaguing stocks as bonds.

On the technical side of things, some importance is being suggested in the coming auctions (about an hour and half away!)...  In tsy futures, we're looking at an INVERSE head and shoulders which will only turn out to be significant on higher volume that may come after auctions.  Even then, it may not be until Thursday that it would throw off any signals.  The best case for bonds would be for a breakout to the upside on the following chart...

But there's another inverse head and shoulders in play on cash market tsy's.  In this case the time frame is much longer, and a breakout would be BEARISH for bonds, not bullish...  The neckline on the chart below is right at the 3.5 level, and in this case, we're hoping that auctions are strong enough to BOUNCE off that support.  (support that is only 1 bp overhead at the moment).

The above chart is not quite a quintessential technical formation, however, and we shouldn't lose sight of the more important considerations at the moment, and indeed for the rest of the week, namely: AUCTIONS.  The first is the 3yr coming up shortly.  We wouldn't expect all the chips to be down until Thursday, but regardless, a much stronger or weaker than expected 3yr could be extrapolated out from current yield curve spreads to inform how traders think the rest of the auction cycle will go.  So if you can believe such a wild concept: a good auction will be good for rates!

Find out here, very very shortly after 1pm, with first impressions... Expect volatility to follow with clearer directionality emerging 30 minutes to an hour after the results...