Until this morning, 103-12 had offered rather firm overhead resistance for FNCL 4.5 MBS. Similarly, 3.13 had been a yield level in 10's that had only been tested on a few brief occasions as yields saw most of their bounces in the 3.14/3.15 area. The suggestion is that we're we're either breaking out of the short term range or that the range is quite simply governed by sloped trendlines rather than horizontal price and yield levels. The latter is probably the way it is, but the only reason we even bring that up is to discount the importance of trading below the yield range in 10's. It LOOKS important, but it doesn't feel that way. For more evidence refuting any major significance here, just take a look at stocks and note the following: a) stocks and bonds have been fairly well connected, and b) throughout May, stocks are noticeably in a diagonally sloped downtrend, right? Bonds are entitled.... The benefit to MBS is a gradual shift down-in-coupon, and as a consequence, rate sheets more and more aggressive.

While April's headline industrial output was unchanged vs March's 0.7 pct increase, it was a slight beat of the 0.4 pct consensus. Capacity utilization was effectively unchanged as well at 76.9 vs 77.0 in March. But the component of the data that measures manufacturing output dropped for the first time since June 2010 (otherwise known as "almost a year"), falling 0.4 pct versus a 0.6 pct increase in March. Citing parts shortages resulting from the Japan Earthquakes, the report showed the motor vehicle assembly rate falling from 8.98 mln in March to 7.86 mln in April. This is yet another economic straw on an already ailing camel's back. The 10yr note, previously able to hold itself just at 3.13 at it's worst moments of the past few weeks is starting to look like it's buckling at the knees. Thing is... (and we'll probably repeat this again today), it doesn't really matter if new territory is forged today unless that forging occurs in high high high volume. Otherwise, we're waiting on tomorrow's FOMC minutes, among other things.

After rising for two consecutive months in Feb and Mar, Housing Starts are down 10.6 pct for April to a unit rate of 523k. Economists had forecast that figure at 568k after March and Feb came in at 585k and 549k respectively. Permits were down as well, falling 4.0 pct to a unit rate of 551k versus a 585k consensus.

Updated at 12:04pm....