It makes more sense to view recent yield highs merely as a convenient location for things to run out of steam in this seller-dominated trading day. After all, a majority of the volume has come and gone today, and the official bond market close has already passed at 3pm. Since then yields have shown no interest in going higher. While we hope that continues to be the case, the break above 3.47 support demonstrated enough bearish momentum for the 2nd round of reprices to become more widespread. If you haven't seen them yet, you probably will.

If you click on the 10yr Treasury Note in the table and pull up a 1 month chart, you can see a big spike in yields on the 28th and morning of the 29th. From then on, that spike takes on technical significance as a support level (just as all the spikes around 3.42 did). So after the most recent round of weakness in bonds, it's due to the fact that yields have turned around at precisely those 12/28 levels that may suggest it as our ultimate foot-hold for today. Going any higher would be betting on an even higher degree of correlation between ADP and NFP than the market has made already.

REUTERS-OBAMA ADVISER PAUL VOLCKER LIKELY TO STEP DOWN SOON FROM ROLE AS HEAD OF WHITE HOUSE ADVISORY PANEL-SOURCES FAMILIAR WITH THE DECISION

He said the “too big to fail” problem has gotten worse. And added, higher rates would improve market functioning. As well as, gold standard 'legitimate' monetary system, but no panacea

Thomas Hoenig, president of the Kansas City Fed and the FOMC's most vocal internal critic on Wednesday pushed back against the U.S. central bank's easing efforts, saying the U.S. economy is recovering remarkably well given the depth of the downturn, and repeated his view that the Fed's loose monetary policy risks provoking inflation in the future. The FOMC’s lone dissenter has repeatedly and openly opposed the Fed's policy of ultra-low interest rates.

Benchmark buyers have disappeared from the bond market and short sellers are making their presence known. 10s are rapidly approaching 3.50% and the FNCL 4.5 is trading below 102-00 again. If you haven't gotten a reprice for the worse yet, you will soon. If you have gotten a reprice for the worse already , you might get another!

"The U.S. just experienced the biggest speculative boom/bust in housing in history, a massive outward shift in the supply curve. Anyone expecting home prices to rise in the face of a glut of unsold homes is counting on either an act of God to destroy huge swaths of the housing stock (a shift back in the supply curve) or an influx of new immigrants needing shelter (a shift out in the demand curve.) Neither is likely, although acts of God are notoriously hard to predict."

Several banks have applied to join the pool of Primary Dealers over the past year, including French bank Societe Generale SA, Canadian bank Scotia Capital, the investment-banking arm of the Bank of Nova Scotia, and MF Global, the world's largest broker of exchange-traded futures and options that is headquartered in New York. The thinking is that more primary dealers increase the bidding activity for Treasury auctions, helping to keep rates a little lower

No sooner had the typing completed on the last update than the previous yield high was broken. Yields have since ticked up to 3.470 even and made several touches there. Owing to the less liquid trading environment versus this AM, it's unclear as to whether or not this is merely a drift or if it might materialize into a move even higher. Regardless, this risk level just increased slightly, so be on guard for further breakout and MBS capitulation.

3.4654. That's the level in 10yr yields that has seen 12 touches. This is exactly the sort of behavior we'd hope to see mark the "building of support around 3.46" we referenced in the last update.

After a ton of excellent technical support bounces in a band of yields between 3.42 and 3.4289 (based on yields marked at 10 minute intervals) this morning, we just suggested 3.4289 as a resistance target as yields moderated. By the time "hindsight" becomes available, and after looking at a tick by tick chart , yields actually touched the same level from both sides! This is generally a confirmation of the previous breakout. Not good news for anyone hoping for a rapid return back under 3.42. This makes the push higher in yields over the past few minutes understandable, and we may have to look to establish better support round 3.46 before coming back down.

3.4654 contained the most recent noticeable bounce for 10yr yields. (MBS 4.5's coincided with a bounce at 102-00). Once again this is simply the next technical support level for 10's, this time tracing back to the opening levels from 12/29. At this point 3.4289 becomes resistance as we reapproach it from the other direction

After going "bid wanted" following a breakdown of 3.42% support and testing 3.47%, we are seeing a modest reversal in 10yr TSY flows. This would imply bargain hunters are at work. This is not indicative of outright bullish strength but does imply skepticism is building about the accuracy of this morning's extremely strong ADP print. Reprice risk is on the decline but we remain defensive. 10s must move back below 3.42% for us to feel safe about MBS prices not falling further from current levels.

Reprices for the worse are not widespread but we are hearing scattered reports of lenders recalling rate sheets. BEWARE.

Benchmark 10 year yields are drifting higher after positional support broke down at 3.42%. Volume has however thinned out as market participants peer into ADP data with a skeptical eyebrow raised (see Brett Boyke's featured comments). This behavior reflects a "bid wanted" trading environment (buyers wanted) where fast$ short sellers are able to dictate direction. 10s find support at 3.47% before they run into firmer ground at 3.50% REPRICES HAVE BEEN REPORTED.

The 10 year note has broken through a cluster of positional support between 3.40% and 3.42% on what appears to be an uptick in short selling. This had led MBS prices even lower which may result in preemptive reprices for the worse. BEWARE. 3.50% is the most logical target in 10s which would push FNCL 4.5 prices below 102-00 again.

The case is not necessarily closed, but so far this support zone has held up admirably with a few bounces off the the high side closer to 3.43 and plenty of recent bounces before reaching 3.42. Sitting at 3.4184 currently

Source: Reuters

Source: Reuters

On the chance that referring to volume as "really really big" is not specific enough for you, here's some specificity. For the hour ending at 9am, yesterday's volume in 10yr futures was 98,902 contracts. That same time period today saw 356,105 contracts traded.

3.4289 is a line that first emerged as a pivot on 12/29. It rests on the high side of a BAND OF YIELDS that comprises the overall pivot zone with 3.42 on the low end. Yields in between these levels are inconclusive, below is positive, and above is worrisome. So far this morning we have a perfect bounce off 3.4287, and another one minutes later. Now yields have returned under 3.42. The whole affair constitutes a 1-0 record versus this support zone, and so far, that's all we know until/unless yields cross 3.42 again. I think the fact that ridiculously immense volume surrounds this successful show of support is significant.

Wow! What a morning! Saw HUGE volume dumping bonds after ADP. This is a clear-cut case of the markets making an adjustment to the NFP consensus through trading levels. So far, the adjustment has been technically superb especially in 10's and 10yr futures. But MBS are also doing a fairly good job holding recent pivot-based support. 3.4289 IS THE MAGIC LINE in 10yr notes. Not the end of the world if we cross it, but significant.

For the week ending 12/31 the seasonally adjusted market index was up 2.3% to 472.1. The purchase index fell .8% to 199.8 while the refinance index rose 3.9% to 2115.4. For perspective, it had been in the 3800 every week from July through Mid November.

Trading flows went sharply negative as ADP Employment Data flashed across screens. This is indicative of not only profit taking but liquidative selling ahead of NFP. We would not be surprised to see frontrunners push 10s as far as 3.50% into Friday morning data as a result of much better than expected ADP data.

Private-sector employment increased by 297,000 from November to December on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. The estimated change of employment from October to November was revised down, but only slightly, from the previously reported increase of 93,000 to an increase of 92,000. This month’s ADP National Employment Report suggests nonfarm private employment grew very strongly in December, at a pace well above what is usually associated with a declining unemployment rate.

Planned layoffs totaled 32,004 in December, down 34 percent from 48,711 in November, according to the 2010 year-end job-cut report released Wednesday by global outplacement consultancy Challenger, Gray & Christmas, Inc. December job cuts were 29 percent lower than the same month a year ago when 45,094 cuts were announced.