Relative to yesterday's levels, MBS had a tougher time this morning than treasuries.  The limits of Monday's MBS range were 101-24 on the low side and 102-03 at the top.  But whereas MBS fell out of that range to 101-20 with the morning data, treasuries' range so far today lies within the wider range from yesterday.  Yields were as high as 3.4 in the AM and fell to 3.33 at the close, versus today's respective readings of 3.38+ and 3.34...

So far, the inflection point in 4.5's seems to be 101-28, a not-insignificant level due to it's role in the early october highs.  The collective MBS subconscious is likely debating whether or not to push higher past this level toward more ancient examples of bullishness or to acquiesce to similar resistance this time around.  Though not drawn on the chart below, there's similar inflection somewhere between 3.35 and 3.36.

As far as lines actually drawn on the tsy chart, there is a band of support at a familiar technical level between 3.38 and 3.39.  Back up's in yield probably shouldn't be taken to seriously if those hold up.  Even then, exceeding those high yields of the AM still leaves yesterday's highs as resistance, whereas MBS have no such luxury should they find themselves again at 100-20. 

On the upside (or downside in yield), a successful retest of 3.33 would be the best case scenario indication going forward...  While the curve is already flatter on the day thus helping offset the decent supply in MBS as buyers like servicers add duration, if the bond market can create additional momentum while maintaining its flatness, it would allow for some much-needed spread widening with limited to no negative effect on MBS prices.

There's one data event right around the corner in the form of a few short term bill auctions...  Though these aren't normally market movers, given the relative extremes in tsy's, every little clue as to the shape of the yield curve is useful.  But more than the bill auctions, other factors are lining up to help the bond market which we'll discuss in the Afternoon post and hopefully not be forced to discuss anything to the contrary in the form of an alert before then!