10's tested this morning's highs in earnest, briefly eclipsing the 3.3578 mark from 9:54 AM to touch 3.361, but have since returned to sub 3.34 levels, which is squarely in the "safe zone" in line with the bulk of yesterday's range from 3.32 to 3.35. This helped MBS catch a bid at 102-19 and level off at 102-20. As is the standard for this time of day, volume has dropped off, official marks are marked and barring any outrageous headline news, little importance remains for today's "after hours" trading between now and 5pm. Seeing as how 4.5's are currently sitting unchanged on the day, the notion that Friday's NFP is the market-moving event of the week is more believable than ever.

10yr yields REALLY pushed it hard into this morning's support level at 3.36, but so far, we do have one decent bounce in, AND this has coincided with MBS holding the line with several nice touches on their noon lows at 101-19+. With the official bond market close at 3pm, this will "mark" well on day over day charts. However, simply due to the minor losses seen thus far, reprices remain a minor risk, especially if support is tested again.

102-20 in 4.5's brings us in line with previous lows just before noon. Benchmark 10's are testing morning high yields at 3.36. Some lenders might reprice now even if we don't break those, but if we do break them, reprices will be more widespread. No big picture implications here. NFP still the headliner on Friday.

MBS are fighting off a back up in benchmark treasuries, but there's no question we're under some sort of pressure since FOMC minutes. Reprice risk is not "high" but it is now present. 10's backed up to 3.35. 6 ticks is not a huge back up in MBS, but given that we're on the heals of an economic event, some lenders might get antsy

Source: Reuters

Source: Reuters

Source: Reuters

Source: Reuters

Source: Reuters

Source: Reuters

Source: Reuters

Source: Reuters

Source: Reuters

source: reuters

Source: Reuters

higher yields were largely already arrived by the time FOMC minutes were released. The risk here is that stocks are rallying, so if the lever stays connected, we could come under pressure, but that would take a few more ticks for the worse before reprices were a risk.

Pre FOMC extremes look to be in as the S&P put in lows at 1263 around the same time 10yr yields bounced at 3.30. Stocks have since moved up to 1266 and 10yr yields went as high as 3.33 before moderating back down to 3.32 making it unlikely we'll see a test of 3.29 before FOMC minutes. The shift in benchmarks led 4.5 MBS back down from 102-25 highs to a recent pivot at 102-23. No risk of reprice for the worse unless these recent changes gain momentum after the minutes.

The S&P has continued to sell, now down to 1263 or slightly under. And while the stock lever has been generally connected today, the weakness thus far has not been enough to convince 10yr yields to move any lower than 3.30. There is still time for them to do so before FOMC, but even then, 3.29 to 3.28 is probably as far as they would take it. 10's currently sit just under 3.31 while 4.5 MBS at 102-25 are as high as they've been in nearly a month.

3.28 was the low yield made in 10's on 12/31, so on a horizontal basis, that's a firm resistance target, but if we take a cue from 12/20 lows, a trendline is established suggesting resistance at 3.29 instead. We'd expect yields to start to lose some steam as they approach this level, reserving a break any lower for post-FOMC trading.

From yesterday's highs around 1275, the S&P has fallen a full 10 points as bonds make fresh lows. 10's have not yet reached 12/31 lows, but 4.5 MBS have eclipsed their late December highs, thanks to decreasing volatility and a lack of MBS supply helping things tighten up versus treasuries. Indeed it does seem like we're seeing some front running of the FOMC minutes, opening the door to volatility later in the day if the markets don't get what they expect.

Treasury trading has indeed picked up as more and more global investors return to reality. However, while volumes are above the 10 day moving average, flows remain relatively light vs. the long term averages. In the latest move down to 3.31% in 10s we saw a decent amount of real money buying (position adding sparked by short covering) which we've heard was fast money traders looking to front run potentially dovish FOMC Minutes.

A trader from Cantor Fitzgerald wrote, "In order to win in 2011, you need to be right about the timing of the economy turning around. In my mind it's still all about the jobs market. Equities and commodities are bulled up. Wall Street research analysts are calling for stocks to be up about 10% in 2011. What a shocker - has Wall St. consensus ever called for a down stock market?"

Today 07:00 - U.S. NOV FACTORY ORDERS +0.7 PCT (CONSENSUS -0.1 PCT) VS OCT -0.7 PCT (PREV -0.9 PCT) Today 07:00 - U.S. NOV DURABLES ORDERS REVISED TO -0.3 PCT FROM -1.3 PCT Today 07:00 - U.S. NOV NONDEFENSE CAP ORDERS EX-AIRCRAFT UNREVISED AT +2.6 PCT Today 07:00 - U.S. NOV FACTORY ORDERS EX-TRANSPORTATION +2.4 PCT VS OCT +0.1 PCT (PREV -0.2 PCT) Today 07:00 - U.S. NOV FACTORY ORDERS EX-DEFENSE +0.3 PCT VS OCT +0.1 PCT

If you click on the 10yr note in your live pricing table and pull up the chart, you can see that movements in yield so far this morning are a perfect extension of the sideways range that began after yesterday AM's rally. To see this range holding steady, in a narrow range, and amidst increasing volume is generally the sort of comment on interest rate volatility that MBS like to see. MBS have taken the opportunity to make a more directional move with respect to yesterday's range. This quietude will be broken either by AM econ data, FOMC minutes, or both.

For the purposes of adjusting your automatic alerts, we'll mark opening levels at 102-22 in 4.5's. First layer of risk centered in a range around 102-16, adjust your specific alert target up or down depending on your past experience with particular lenders (remember of course, you can set multiple alerts if you have more than one lender's habits to contend with on a given day). Next layer of risk at 102-10. On the upside, reprices for the better as 4.5's approach 103-00, and more specifically, could be seen at 102-30 if things seem stable or directionally positive.

Volume in futures was characteristically low leading up to the 8am domestic open. From 5am to 730am, treasury futures had been holding relatively flat while s&p futures rose from 1267 to 1269.6. But beginning at 730, treasury futures began to rally and stock futures to sell as volume increased for both. 10yr note futures are 8 ticks or so better than 5am levels and S&P's have returned to 5am levels at 1267.

Reports from brokers indicate overnight volume in treasuries somewhere just over 2 times the 10 day moving average, putting things back in line with pre-Christmas volume, but still well short of late November/early December's levels. Chalk some of this up to London and Tokyo being back from vacation.