Another month, another impending jobs report, and another round of epic markets... 

Sadly, nothing was so epic about MBS or Tsy's today, unless you're a big fan of long term rates moving quickly back away from short term rates (steepening yield curve)...  The good 'ol steepener generally isn't so good for MBS in this market as it tends to coincide with price losses in lower coupon MBS and longer duration tsys. 

On the day, here's the damage:

• 4.0 back under par.  down 20 ticks to 99-26
• 4.5 down 14 ticks to 102-06, just a tick under the highest weekly close in history (so things could still be worse in terms of outright price)
• 10yr tsy's down 24 ticks.  Yield up to 3.28.
• Stocks Rally, but the epic  bull flag, aka range-bind continues...
• 10yr futures FAIL to confirm yesterday's breakout of a very important technical level.

Letting those bullets serve loosely as a table of contents, here are the charts.

2 day MBS 4.5's

After yesterday's remarkably smooth range rally up to all time highs, the other side of the mountain is a bit bumpy...

After all the falling, falling, falling, the resting point at 102-06, interestingly enough, is 1 tick higher than the upper limit of the incredibly stable and bullish late spring months.

Looking at technical price levels in MBS is sometimes a benefit and sometimes misleading.  Whether you do or you don't, it's always important to get context from the broader rates market.  With that in mind, what did tsy's have offer?

10 Year Treasury Yields

yields backed up all day in a similarly range-bound fashion, although with more volatility.

The long term is even more important as there are some very clear technical signals that add credence to the potential "failed breakout" reading you might get from MBS.  Clearly, 3.2 has seen retest yesterday and today.  So far, resistance holds, but we are not yet back into the low yields of the long term range, so this could be some range exploration ahead of NFP.

Stocks

If you wanted any other votes for range-exploration, stocks seem content to do the "pinball caught between the bouncers" routine.  The range trade just keeps going and going...

Not much significance to infer as far as predictions of the future, but that's another instance of a linear bounce within a range at the outer limits of recent action, just like tsy's between 3.28 and 3.2....

10yr Tsy Futures...

Any additional corroboration here?  Yes and no.  As we discussed the other night, there have been two resistance levels over tsy futures.  The lower level at 119-29 corresponded to 3.30 (ish) in tsy yields and has been broken for now.  But the higher and more challenging level, although seemingly broken yesterday, returned to show resistance today.  That constitutes a "failed" test and would normally not be a great sign for futures. 

In addition, if we assess a rates period without lows from the summer doldrums and use modal support at 117 to 127, the breakout would have occurred at the 38% retracement, and today's losses would have brought it back just there or slightly under.  I'm fond of arguing a case for modality when it comes to setting technical limits, but whether you can get on board with that or not doesn't change the fact that there is a definite horizontal price level right here at 120-25 that came into play in a significant way before prices fell into the summer. 

This isn't to say that prices in futures are coming back down.  Indeed I see the firmer resistance  just under the 50% retracement, but the moral of the story never changes on weeks like these: range-bound and volatile ahead of NFP.  Don't read too much into that volatility until the market CONFIRMS any recent directional "surprise."  With that in mind, more watching...  more waiting...

Quietest day of the data week tomorrow:

- adp employement  at 815

- Geithner at 930

- beige book at 2pm (only saving grace on an otherwise lifeless day for data)