In a somewhat interesting turn of events, 10yr yields did everything they had to do in order to NOT break through resistance today, both in terms of the 3pm closing mark and the 3pm mark on the hourly chart. If you note the most recent MBS commentary post's hourly chart with the trend channel, the point at which yields would have hit the lower red line would be 3.601. Today's lowest yield: 3.601. That part took care of rejecting the diagonal trend, and from there, yields rose quickly to just over 3.61 by the time 3pm closing came around, which caused closing marks to reject a breakout of their own resistance. MBS have fallen off a bit as treasuries have backed up after hours with the FNCL 4.5 now at 100-24. 100-22 would need to be broken and MBS prices moving lower before reprices for the worse became a serious risk.

Recent labor markets developments, including mismatches in the skills of workers and jobs, extended unemployment benefits, and very high rates of long-term joblessness, may be impeding the return to "normal" unemployment rates of around 5%. An examination of alternative measures of labor market conditions suggests that the "normal" unemployment rate may have risen as much as 1.7 percentage points to about 6.7%, although much of this increase is likely to prove temporary. Even with such an increase, sizable labor market slack is expected to persist for years. LEARN MORE......

As expected, the 3.61+ yield levels in 10yr notes have thrown up the firmest resistance to further bond market gains, but have done so without causing a spike in volatility. MBS appreciate that lack of volatility and have ratcheted up one more tick now with FNCL 4.5's at 100-26. They haven't been any lower than 100-24 since 10:30. This ongoing stability at the highs of the day allows more and more lenders to get on board with reprices for the better and if you haven't seen one yet, you probably will unless your lender priced late. We continue to entertain the possibility that resistance could break in 10yrs and the probability that such an occurrence wouldn't coincide with sufficient volume for it to be a confirmed break.

After grinding into resistance several times at 3.612, 10yr note yields look like they may try to test something lower. This is the yield range where the toughest resistance is thought to be, and without some sort of upsurge in volume, a break lower may be fairly inconsequential considering the data on the way during the rest of the week. That certainly hasn't stopped lenders from repricing for the better, or FNCL 4.5's from continuing to trade in a tight range at their highs of the day, currently at 100-25.

"Rate sheet influential" MBS prices have gone sideways near their intraday price highs but gains have been sustained long enough for lenders to recall and reprice rate sheets for the better.

Trading flows reflect modest profit taking as benchmark TSYs and "rate sheet influential" MBS coupons are near their best levels of the day. This illustrates a defensive bias toward an extension of Friday's interest rate rally . It also raises a red flag as a potential turning point in intraday price directionality. Stay tuned. Trading volumes are somewhat apathetic and a drifting mentality is settling in.....

(Reuters) - President Barack Obama proposed a budget on Monday that would cut the deficit by $1.1 trillion over the next 10 years, but Republicans said it did not curb spending deeply enough. Conservatives accuse Obama, a Democrat, of being a tax-and-spend liberal, and they aim to make the 2012 presidential election a referendum on his fiscal track record. Obama said his plan was a balance between deficit reduction pain and investment for growth. But it only provided a general guide on how to tackle entitlement outlays that include the Social Security and Medicare programs responsible for huge government spending. "The fiscal realities we face require hard choices," he said in a message to Congress accompanying the budget. "A decade of deficits, compounded by the effects of the recession and the steps we had to take to break it ... has put us on an unsustainable course. That's why my budget lays out a path for how we pay down these debts," he said.

NY FED'S DUDLEY-FACT HOUSEHOLDS TAKING ON MORE AUTO DEBT PROBABLY SIGN OF INCREASED ECONOMIC CONFIDENCE. DRAG FROM DELEVERAGING MOSTLY OVER. FINANCIAL CONDITIONS MUCH MORE ACCOMMODATIVE NOW. US ECONOMIC SITUATION IS 'CONSIDERABLY BRIGHTER'

At this point, MBS have crested their best levels from Friday and have made a significant dent in the range of prices seen on 2/8. The highest mark reached by 4.5 FNCL's that day was 100-29 and they're currently at 100-25. The next resistance level would be at 101-00. 10yr yields touched an important pivot point recently with yields hitting 3.612, matching lows from Friday. This is the lowest yield on the 10yr since 2/4. A break lower than this would be significant, if it occurred in good volume.