• MBS close down 10 ticks at 100-07
• 10yr Tsy yield up to 3.801
• Yield curve at that familiar 282bps level
• S&P up about 5 points to 1198, right in line with their sub 1200 technicals

Unfortunately, any time the MBS market peels off 10 ticks, we're going to see reprices for the worse.  Today was no exception, but the actual message being sent by trading today is a lot less black and white.  All that's needed is a slightly longer-term viewpoint in order to see today's moves as well within the tolerances of recent trends, leaving us continually waiting for a definitive move.

Let's actually start with stocks today as I think they tell the best story.

What You're Looking At In This Chart

Here's about 2/3rds of a month's look back at stocks.  We can see stocks fall on the 8th to test the previous lows from the close before the extended Easter weekend.  It then bounced higher, creating new highs and closing near them for several sessions before making a test into the 1200's.  That test higher proved to be a bit premature according to market action from the 16th and today.  Bond bulls would have liked stocks to fall well below the teal line and keep moving down, but the lower line at 1185 was firmly resistant to that.  With today's late rally, stocks find themselves right in line with those previous "on deck" positions, waiting to take a swing at the 1200's again.  They'll get their at-bat tomorrow, and any base-hits will likely coincide with further weakness in bonds.

Speaking of bonds, MBS and treasuries are absorbed with their own technical movements as well. 

What You're Looking At In This Chart

This shows those technical movements in MBS and the 10yr yield.  On the MBS side, our first inclination might be to draw the dotted line to connect the lower end of the range, but as we discussed last week, the next line up ("Internal Trendline") is more pertinent.  Interestingly enough, when we do that, we get the standard issue PARALLEL lines that comprise a "trend channel."  With 3 cycles down in this uptrend, there's a chance the trend breaks tomorrow, and the curveball is that it hasn't broken yet!  So if you're playing the range until the range plays you, there's reason to wait.  But there's better than a random chance that this trend will end this week, and tomorrow may be the day.  But...

The most bullish reading on a chart tonight is on the 10yr (below MBS on this chart).  Yes, it's in the same sort of trend channel, but not only does it "have room" to test 3.83 tomorrow and maintain that trend, but the horizontal teal line just over 3.80 is a great level to have held today.  It gained a good level of technical significance by acting as resistance from the 13th through the 16th.  The fact that yields didn't blow through that level means the market was relatively happy with where it was and is reserving a bearish move for something more potent than this Monday could offer.

Tomorrow doesn't offer much either in terms of econ data, but we do get Bernanke at 11am.  That promises to be a driver of the short end of the curve (or at least it promises it CAN BE), and if 2yr yields are pushed higher, 10's DO have "permission" to hold their ground a bit with the yield curve a bit steep at 282bps.  If the curve is willing to drop into the 270's, 10's could do just fine despite a rise in 2's. But continued gains in stocks coupled with a vanilla Q&A from Ben and 3.83 would start looking like a better-case-scenario, meaning we'd be happy with only minimal losses in MBS.

The moral of the story is that we've been feeling the liklihood for slightly higher rates at some point this week and the mild movement today from 3.77 to 3.80 is likely not the end of the story.  What's cloudy in the old 8 ball is whether or not today was the beginning of that move or merely a few practice swings from the on-deck circle that will actually result in gains tomorrow.  Without guidance, it's dubious the market will do much at all, so we turn to stocks/earnings and Bernanke, and will keep you up to speed on how they are affecting MBS.