Here's a look at the week so far:

Note the narrowing ranges in both MBS and Tsy's...

FOMC minutes didn't pack much of a punch today, at least not as far as one might be able to infer from the chart.  If you tried hard, you might chalk up as much as a quarter point of MBS improvement to post-minutes trading, but you'd be ignoring the nearly half point drop in price earlier this AM and perhaps the fact that today's price movements coincide well with the thoughts this AM on narrowing ranges and volatility ahead of NFP.  If nothing else, the importance of NFP was reiterated as FOMC minutes did mostly nothing.

Volume continues to ramp back up with progressively higher tallies every day so far this year.  Just as the shorter term charts show a narrowing range, their effect on the long term charts serves to put another day between us and the worst levels of recent memory.  BUT BE CAREFUL!

IF YOU KNOW THAT

• MBS TRADE IN SOME SORT OF RELATION TO INTEREST RATE BENCHMARKS SUCH AS THE 10YR TSY NOTE, AND
  
• THE SPREADS BETWEEN MBS AND TSY'S HAVE GROWN HISTORICALLY TIGHT,
• AND EVEN THOUGH SPREADS CAN CAUSE MBS CORRELATION TO TSY'S TO VARY, OVERALL, THEY MOVE IN THE SAME DIRECTION IN THE LONG RUN

THEN YOU'D NOT WANT TO BE IGNORING THE YIELD CURVE OR EVEN SOMETHING AS SIMPLE AS THE 10YR AT 3.8x...

WHY?!?!?

Because we can worry about the two pivot points in MBS all we want (illustrated above in red and yellow), but not only are we still dangerously close to 3.85, BUT though the first instance is barely perceptible to the naked eye, 10yrs have met resistance TWICE recently at or around 3.75.  They're stuck in an unhappy place.  As the volume continues to pick back up, slowly but surely, the new, incredibly higher-in-yield range IS BEING CONFIRMED! 

Perhaps not "surely" though, but with flat stocks today and bond losses, this is our first vote of the year for the the delineation of year-end seasonal effects versus real and actual problems for rates.  In other words, if bonds could gain in recent days amid flat to higher stocks, and today they retrace amidst the the same, it suggests the "fog of december" may be thinning.

Or it could be the pre-NFP "lead off" to higher yields, "pre-event concessions," or however you want to describe, "preparing for the worst."  We've seen the same occur time and again ahead of tsy auctions and other significant events in 2009 where INDICATIONS OF FUNDAMENTAL SHIFT ARE AT RISK OF BEING EXPOSED!!!!! 

Think about that....

What does it mean for rates and traders?

If the market is about to get a big dose of high rate reality from the NFP, what's going to happen?

"Rates would get higher" is only part of the answer, the logical part...  But what else?  A bullish NFP benefits who else?  STOCKS!  JOBS!  ECONOMY!  YAY! 

SOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO............

When everyone in the world is and has been WAITING for GUIDANCE as to the DIRECTION of the markets, AND if the only available direction in which rates could move meaningfully from 2009 is UP, THEN which side of the "base" (baseball analogy... base = previously accepted trading range in bonds, in general), is the best candidate for a lengthy "lead-off?"

Just consider stocks and bonds for a moment...  And just pretend there are two potential outcomes for NFP: good or bad.  Here's the flow chart...

1. Economically positive NFP :  Stocks Rally, Bonds Tank, Traders with higher and higher pre-NFP concession yields : WIN!  Those betting on lower rates LOSE

2. Economically negative NFP:  Sure, if the NFP is economically bearish, it would have paid to bet on lower rates, but you'd be risking a positive reading and severe losses for not getting on that band-wagon.  Those with the high-yield lead off, on the other hand, MERELY "TIE" with everyone else losing an arm and a leg on a horrible NFP.  So the up-in-yield concession is either a tie-game or a win whereas a lower-yield preference is either a win or a loss, which would you rather have?