Normally on days where we have a treasury auction, if we see choppy movements on an MBS or treasury chart, those spikes tend to coincide with the auction time.  So in the following chart that shows some huge spikey movements in MBS, we'd probably assume (if we didn't look closely at the x-axis) that the initial spike would be auction related.  However as AQ discussed last week, illiquidity is a bit of a problem today, and MBS are among the least immune to illiquidity driven, exaggerated movements in price.  In fact, we'll see in other charts a bit of a more stable picture, a luxury afforded to such securities that see vastly more transactions per minute than MBS. 

What do you need to know about all that?  Nothing really... except not to "freak out" about the chopatility in the MBS chart below.  It's no big deal.

By contrast, movements in 10yr notes are much more measured and eerily technical.  Looks like plenty of support to yields going higher, leaving us to wonder if they can go lower and test the bottom of that channel, which could result in a somewhat rapid and directional move lower.

If we look at 2yr notes, the actual subject of today's auction, we'd expect to see spikier movement, and so we do.  But spikey in the context of what turns out to be a measured technical range in the slightly bigger picture. If the market has the legs to make a meaningful test of yields below 0.48%, today would be the day, and now would be the time.

Finally.... The 2s/10s Curve! The curve has some big decisions to make here... 

Will 11/22 end up being the outlier in an otherwise "236 or higher" yield curve?  Or will the 11/22 instead be the day the curve shifted under 236?

We don't want to get ahead of ourselves during a holiday shortened trading week, but this choppy price action does offer a few glimmers of hope....most of which are technically/tactically driven but the fact that 10s continue to hold below the 2.84/85% pivot and the 2s/10s curve hasn't broken 236bps support is another sign of the potential completion of the QEII cleansing process and beginnings of a recovery rally.  The day's ahead promise to offer more choppy behavior though...so we will refrain from waving any recovery rally victory flags until we see some blocks being waved in through the belly of the curve and follow through bargain buying.