Not only was today's 7yr note auction the final auction of the week, it was the final auction of the year. 

If you were watching the market today, you're already aware that we saw some pretty massive gains in production MBS coupons.  4.0's were up 38 ticks (1-06) to 98-30 and 4.5's were up 28 ticks to 102-05.  Volume was better than yesterday but still below average (about 2/3rds normal vs yesterday at 1/2 normal).

Bargain buying ensued before, during and after the auction. Plus, looming month-end index extensions, rising yields yesterday, and a strong 7-year note auction also helped snowball short-covering which added fuel to the rally.

And just like snowball selling destroys production MBS, snowball buying does quite the opposite.  In fact, even the mere promise that treasury benchmarks were beginning to top out in yields this morning had MBS off to the races early with a nice jump up in price seen just before the noon hour. This was a sign of bargain buying to come....

As far as reprices today, I'll have to let an excerpt from AQ's post on the Mortgage Rate Watch blog do the talking there... 

Yesterday was a sensory overload for rate watchers. Lenders repriced for the worse. Then they repriced for the worse again. And again. One lender recalled rate sheets five times! I am not kidding. 5 TIMES!!

Today was a sensory overload for rate watchers. Lenders repriced for the better. Then they repriced for the better again. And again. One lender recalled rate sheets five times! I am not kidding. 5 TIMES!!

Heck...  Maybe the fact that I threw on the old x-mas sweater and got cozy with kitty this morning did the trick after all. And truth be told, to see the overall mood improve in the live discussion window on MBSonMND, I will bear that cross for you guys...  I will wear the sweater if it means multiple reprices for the better...  We just have to be careful not to abuse it's power, so probably only when things look really bad...

Plain and Simple: bargain buying intensified as benchmark guidance givers approached a range extreme. This is the 2nd time we've witnessed real$ open their checkbook as 10s tested 3.50%. This is what we need to see if rates are gonna retest lower levels in the new year.