• 4.5's down 2 ticks on the day to 100-00
  • 10yr note up about 2.3bps at 3.886
  • Stocks back at 1187 in S&P
  • Bernanke speaks later this evening
  • limited data tomorrow

This is today's chart of 10yr treasury futures:

It shows volumes getting lower as prices are getting lower.  (lower prices akin to higher yields in our normally pictured 10yr note).  This tells us a few things.  First of all, we see volume pick up in support of that particular level around 115-25 to 115-26, which corresponds to 3.90 on the regular old cash market chart.  It also speaks to the 10yr notes picked up at yesterday's auction working their way through a short distribution cycle, concentrated as much as possible at higher prices, and fading out into the close.

What does it all mean?  2 things:

   1. Today's weakness is almost all about tradeflows as opposed to fundamental changes risk and demand.

   2. Even so, volume picked up enough to vote "NO" to yields rising back above 3.90.  In fact, 3.90 (call it 3.89+) is intensely significant at the moment.  following chart of today's 10yr yields show why.

 

Classic case of the internal trendline, aka "one man's floor is another man's ceiling."  In other words, 3.89+ was the first and only prominent showing of resistance to falling yields after yesterday's auction.  That MEANS SOMETHING...  I'm not sure what, but the fact that it stopped there, does mean something.  I get the sense that the treasury bid got a little aggressive riding the post auction euphoria, and today was kind of like a return to reality.  Now!  The reality is still very nice!  Just not quite as nice as the 3.85's hit last night and this AM.  Call it "cautiously optimistic" versus being "recklessly" so.

In fact, 3.89+ is very much a crossroads, and without the impending supply to shuffle through earlier this week, I'd imagine it would have been a more appropriate crossroads than 4.0.  We only reached 4.0 with the help of the concession which AQ already pointed out in a post this AM.  What else suggests we're back at a crossroads? 

How about stocks right back in the 1187+ mix?

And finally, who could forget our namesake MBS!  only 2 ticks down on the day, not too bad... and performing as well as treasuries, and even slightly better into the losses.  The consistency of post-fed-exit spread behavior continues to impress.


What's the big picture here?

Simply this...  No one knows exactly what the big picture is, but we made it through auction week without a close over 4.0 (fingers crossed for tomorrow, I suppose, but a 10bp back up on no data?! that would be harsh!).  In fact, friends of 4.0 everywhere came out of the wood work to declare it an attractive yield.  Now we get to find out if it's attractive enough to make the next few contestants down the line look attractive as well.  In other words, is 3.82 close enough to 4.0 to retain healthy demand?  Or will it be 3.90?  Or something else? 

For sure, there will be some discovery as to how this post-4.0-retest range will look (however long it lasts), but at the very least, I think things are looking better for bonds at the end of the week than they did at the beginning.  10bps is too narrow of a range to hold for long, and unless something massive and economically bullish transpires, a break below 3.90 is way more likely than a break above 4.0.