A few updated versions of the charts I posted earlier today.  S&P's continue to fall, and 10yr year yields are following along with a high degree of correlation.  Keep in mind that what we refer to as "the stock lever" is simply the degree of positive correlation between bond yields and stock prices.  In extremely correlated cases, a certain amount of movement in bonds might correspond to a certain amount of movement in stocks in the same direction, and that the two markets would keep moving in the SAME PROPORTION for a certain period of time. 

But at other times, even if the movements don't remain in proportion, we can still observe a strong correlation when bond yields and stock prices are merely moving in the same direction at the same time, regarldess of the magnitude of those movements.  This is more like what's happening today as bonds have maintained a generally more aggressive rally than stocks have maintained a sell-off.

There are a few reasons for this.  First of all, the "risk-off" trade favors money flowing IN to Treasuries slightly more than it suggests money flowing OUT of stocks.  Also, the official start to Operation Twist also speaks directly to Treasuries as opposed to stocks.  But the element of technical support in stocks shouldn't be overlooked either.  Stocks have certainly seemed to be hesitant to dip below 1120's over the past two months, but here's how the daily chart would look if trading stopped right now.

Despite the ongoing rally in Treasuries and ongoing selling in stocks, MBS are incredibly reluctant to take 3.5's any higher than 103-06 right now.  That's not to say it simply CANNOT be done, rather, that the resistance seen thus far has been immense, and that makes 103-06 a level we should continue to watch for support when/if prices move higher or resistance if they don't move higher.