• 4.5 MBS down 6 ticks to 100-26
• 10yr Tsy about 5bps higher at 3.743 (vs. 5pm yesterday)
• Wholesale Trade Improves from -.8% to -.2%, but misses expectation of +.2%, no one cares
• Pre-Auction Concession + range dynamics weigh on 10's, MBS follow

The movements in bonds this AM tells us just how focused the market is on the upcoming auction.  Granted, the econ data earlier today isn't exactly "top shelf" (or even middle shelf for that matter), but without a microscope, it's hard to tell if it was even traded.  The "room to run" that AQ discussed this AM in conjunction with the standard pre-auction concession is dominating the movements in the benchmark, which itself, is forcing MBS prices lower.

Somewhere between an eighth and a quarter of a point has left the YSP building from a secondary standpoint, and rate sheets reflect that.  This isn't a lot of cushion if yields are pushin' higher after the auction.  Normally, the expected volatility of pertinent treasury auctions results in rate sheets a little on the safe side (extra .125 to .25).  In fact, many lenders were on the safe side before prices continued trending downward this morning, but the current downtrend may not be enough for any reprices for the worse ahead of the auction.

What it all boils down to is that there is little, if any room for MBS to fall from current levels without seeing a reprice for the worse, so stay tuned following the auction as we'll let you know ASAP if we're seeing losses.