After 10yr yields hit a resistance bounce at the bottom of their recent trend channel higher in yield, they subsequently broke lower and returned to that same trendline, but this time for a support bounce. Classic pivot move.... Knock on one side of the door, leave the house, knock on the other side, move on... Let's just hope that "moving on" is the gameplan after tomorrow's auction!

As production coupon MBS prices have bounced 9 ticks from intraday lows, lenders are starting to reprice for the better. Reports are not yet widespread but we are hearing of scattered recalls.

(DOWJONES) Fisher doubts monetary policy has much new to offer and believes the business community is being held back primarily by Washington-fueled uncertainty. Major changes in the oversight of the financial system, coupled with reform of the health care system, were the primary forces blunting hiring and, in Fisher's view, the Fed could do little to change that. Fisher continues to tie the moderate pace of recovery to those factors, but in an interview Monday with Dow Jones Newswires, the official said he expects the Fed's $600 billion bond buying program to be completed by next summer as planned. But he did not expect the Fed to go beyond the planned amount, and he said it's up to congressional leaders to take the actions that will be needed to help boost the outlook.

(Dow Jones)--Believing the Federal Reserve has done enough to aid the economy, FOMC voter and Dallas Fed President Richard Fisher called on Congress today to reduce uncertainty and get its financial house in order, which should then help improve the economy's growth prospects. "The Fed has done much ... to provide the bridge financing until the new Congress gets to work restructuring the tax and regulatory incentives American businesses need to confidently expand their payrolls and capital expenditures here at home”

(Reuters) - The United States posted an $80 billion budget deficit in December, slightly smaller than economists had expected, Treasury Department data showed on Wednesday. The December deficit was narrower than December 2009's gap of $91 billion and just under the $82 billion forecast by economists in a Reuters poll. Receipts rose to $237 billion in the latest month, up from $219 billion a year earlier. Outlays rose to $317 billion from $310 billion in December 2009. The government has now posted a budget deficit for 27 straight months, the longest streak on record, the Treasury Department said. http://fms.treas.gov/mts/index.html

http://www.newyorkfed.org/markets/tot_operation_schedule.html

After yields near 3.37 provided the first major resistance bounce following the 10yr auction and was subsequently broken in favor of 3.35, the recent beige book release nudged yields back to that technical level. This short term pivot is now being tested for a support bounce and so far, is performing well, especially as stocks languish sideways since the 10yr auction.

Source: Reuters

Source: Reuters

Source: Reuters

Source: Reuters

Source: Reuters

The Post-Auction trading range has consolidated in a perfectly narrower triangle heading to 3.35. Beige book will coincide with triangle breakout. Seems that an upside breakout would result in something more sideways than outright "negative," even though a bullish breakout could, itself, be limited by the "wait and see" for tomorrow's auction.

There's a clearly defined trend channel leading yields higher from closing level lows on the 10th. Those lows connect with yesterday's early morning and late afternoon lows to form a trendline that current yields just hit. Markets may decide to wait for beige book or tomorrow's 30 year auction before breaking this recent bear trend. If that's the case, it would be far more important for yields to STAY UNDER technical support from the opposite side of that trend channel that rested at 3.42 moments ago, but could be approaching 3.50 by tomorrow afternoon. For now, yields are holding at their best levels of the day however.

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Since 3:14, yields are moving HIGHER as 10's seem to have had a tough time with 3.37 technical (which is where we noted yields would "immediately move following a strong auction). Either this will prove to be a consolidative move sideways before additional strength, a technical resistance bounce (bad), or a convenient location to pause before getting the green light from beige book and tomorrow's auction. In the last 60 seconds or so, yields are showing the first potential sign of holding support just below 3.39 (supports two of the less "bad" theories above).

We are aware that some of you recently experienced trouble refreshing the dashboard immediately following the 10yr Auction. This is likely being caused by the amount of site traffic drastically exceeding our forecasts for the early post-auction minutes. We are in the process of determining the exact source of this issue and implementing a fix.

Strong results in the 10yr indicate pent-up demand for the long end. MBS FNCL 4.5's are up sharply in concert with 10yr Treasury Note Prices, rising to 102-03 from 101-30. Reprices for the BETTER will follow if this initial momentum Carries.

Source: Reuters

Source: Reuters

Source: Reuters

It's a dysfunctional love triangle this morning as we sort out who is pushing whom. An ongoing equity rally keeps 10yrs pinned at their worst levels of the day. The question of "how much of a concession are we supposed to build in?" likely isn't helping the situation. MBS are caught in the crossfire of that negativity as 4.5's are forced to concede another tick to rest at 101-30. But at least there's grace under fire as FNCL 4.5's are looking much less choppy vs 10's, as they fight to stay sideways around 102-00.

S&Ps have improved further over the past 30 minutes but benchmark TSYs are holding up and continue to drift mostly sideways BELOW 3.42%. We take this relative stability as a positive indicator of pent up bond investor demand, which we hope will be displayed in the $21 billion 10 year note auction. Results will be released at 1pm. MBS yield spreads are tighter

As stocks have crept into their highest levels of the morning, bonds are at their weakest levels with the 10yr now above 3.41 and FNCL 4.5's at 101-31 and seemingly under pressure. Things may get worse before they get better if the market decides it needs additional concessions before the 1pm 10yr Auction.

It remains to be see whether or not stocks and bond yields will move with much correlation this AM, but at least as far as opening stock levels are concerned, bonds are continuing to hold steady with 10yr notes in a narrow range centered on 3.40. and FNCL 4.5's still at or near 102-00 depending on the moment (+ or - a tick).

The 10yr has taken an opportunity to back up a bit this morning and has done so to a rather logical pivot point around 3.41. This were the high yields from late Dec and 1/3, and the low yields from the 5th and 6th. So far it seems to be holding supportively this AM, but be wary that a breakout could be a negative momentum signal. MBS are just over 102 and any losses that put them near 101-26 (January lows) would coincide with acceleration in reprice risk. On the upside, 102-10 is the next important technical, with a sustained move there, or significant break above likely resulting in reprice for the better potential.

Geithner Comments on China: Beijing's currency regime "not a tenable policy" for world. US needs progress from China on currency, intellectual property issues. China a source of opportunity and concern for U.S. China and U.S.. need each other for economic growth. However, U.S. growth will depend on u.s. decision, not china's policies. U.S. needs "more simple and more fair" tax system

Mortgage purchase applications fell 3.7% in the first week of the New Year, but overall loan application volume nonetheless increased thanks to an advance of refinancings, according to the latest weekly MBA Mortgage Applications Index. The average interest rate for a 30-year fixed-rate mortgage fell four basis points to 4.78%, spurring homeowners to lock in at better rates. Refinances increased 4.9% in the week, helping the overall index climb 2.2%. The four-week average of the index remains down 5.3%. “In a discouraging sign for the home sales outlook, the nascent recovery in purchase applications has recently stalled,” said economists at Nomura Global Economics prior to the release. “Unless the improving trend from late November returns, we may need to lower some of our home sales forecasts.”

Source: Reuters

Economists at BMO Capital Markets note that Portugal’s bond auction yesterday was “somewhat better than expected, with borrowing costs easing and demand at the high end of an expected range.” However, they expressed reservations about the rest of the week. “This removes some pressure on the country to seek a bailout, but investors remain worried that borrowing costs remain unsustainably high and that Portugal will need to seek aid. As well, the bigger test of investor confidence could be Spain and Italy’s debt auctions tomorrow.”

Source: Reuters

Source: Reuters

Source: Reuters

Source: Reuters