To provide some background for the charts we're about to see, here's what we wrote this morning: "The 9am spike we can obviously attribute to the European Central Bank's announcement that it will be providing dollar-based liquidity via 7 day repo's beginning in early October. Essentially, this is confidence builder for European markets as it suggests they'll have the liquidity to get through the rest of 2011. European funding concerns are a BIG deal and these repo operations are perhaps seen as a sign of the times of a burgeoning ECB involvement. 

Without putting too fine a point on it, folks are thinking of the ECB's current role in Europe like the Fed's role in the US in 2009/10. We all saw the sugar high that Fed Involvement gave domestic markets so why not assume Europe might get a similar sugar high. It's not so much that today's announced operation is "huge" in and of itself, but again, a potential indication that the ECB will continue taking a Fed-like role with respect to propping up EU markets. Good for stocks at home and abroad.... Bad for bonds.."

That "badness" for bonds manifests itself in what we see as a shift (perhaps temporary) away from a directional trend of improvement in Treasuries to a sideways trend heading into next week's FOMC.  In other words, it's Thursday and the data is over for the day!  Time to think about packin it in and taking an equivocal sideways stance before the next big event, right?!  Here's the bullish trend :

I wasn't quite pleased with where yields seemed to be stopping in the chart above, and wanted to tie today's movements in with some previous techs.  We don't have to look very far...  The two most significant horizontal lines from the past two months have precisely captured the highs and lows of the day following the morning selling spree.  Think of it like this... 10's are in rally mode (generally).  The ECB news this AM shouts "abort abort!"   10's pull up and level-off at an altitude equally suited to a subsequent move back lower or higher.  Here's the chart:

note: that's 2.12+ and 2.06+ in the chart above

To emphasize the hypothesis that this was an intentional and calculated move, take a look at the chart of today only.  Yields are trading as if the the 2.06+ floor is "a given," after having clearly backed away from 2.12 with higher volume bounces.  Once the 2.12+ ceiling was in, looks like it's time to set the black box for that 2.06+ floor and head home for the day:

All this has been far more independent from stock market movements than much of the recent "stock lever" action we've seen.  Treasuries have benefitted to greater degree than stocks have lost-out during the course of the recent risk-off trade.  Last time stocks were at today's levels, 10's were about 4 bps lower.  The ECB news this morning mitigates the "risk-off" vibe--the one that had been benefitting treasuries more than hurting stocks, right?  So it's the same process in reverse.

As hoped and expected, MBS have been staying stronger than TSYs into these bigger sell-off's.  And speaking of sideways, MBS will be able to hold onto this broader sideways pattern centered on current levels even if Treasuries lose a bit more.