I won't lie to you.  It's not common to experience the type of losses we've seen recently without some form of correction, especially considering the valid argument that the punishment did not fit the crime.  In other words, we lost a lot of ground in December without nearly enough data or fundamental change to back up the losses. Now, that's a dangerous way to think because just when you think you know what the market is going to do next, it surprises you, but as long as you temper any "2010 optimism" that caveat, today was the potential first step in a recovery rally.

Why not the previous few rally sessions in late 2009?  Well remember, they don't matter, not only because volume was significantly higher today, but because 2009 is just so, well... 2009!  So... Last Decade! 

Best case scenario, we could see a nominal recovery rally coincide with the traditionally supportive MBS week and post NFP volatility reduction.  Worst case scenario, gains could be short lived and even sent in the wrong direction before Wednesday's FOMC minutes which could exacerbate the problem, followed by a better than expected NFP which could further tank rates.  That's somewhat of a longshot though, given the concession built into the end of the year.  And that very concession is a contributing factor allowing MBS to gain on limited data, ahead of the more important headline events yet to come.

There's really no telling exactly where the new range will establish itself in 2010, but at the risk of stating the obvious, probably higher in yield than Winter 2009 Lows and probably lower in yield than Summer 2009 Highs (incidentally, not much different between summer highs and winter highs!  Thanks December!  -not.)

Notice this is the second time recently that tsy yields have found support in the mid 3.8's.   First it was 3.85, then 3.84.  Today eased a bit further to 3.821.  MBS were up 8 ticks, closing over par at 100-03.  Stocks continued outside the late 2009 range to the positive with the S&P rising to 1132.99.  The Dow was up 155.9 to 10584.  The stock rally was largely a factor of strong PMI readings, both in China overnight, and then in the domestic market this morning. 

Though we agree that things aren't likely to stray too terribly far from current levels overall, there can be plenty of movement this week, not only because of the obvious "Hey It's 2010!" reasons, but also, this is the natural order of events leading up to any NFP report.  So yes, the ride may get a bit bumpy.  Big mid-week bump always possible with FOMC minutes, and biggest bumps reserved for NFP.  As of tomorrow, we're back to normal schedule to bring you the play by play.