After an annoying morning of getting yanked around by every little European headline, bond markets have been calmer in the PM hours, ironically settling into levels very close to where they began trading today. As we noted earlier today, this morning's economic data was a non-event, but tomorrow morning's could be. Non-Farm Payrolls are forecast at +95k with the Unemployment Rate holding steady at 9.1%. That's the only major release tomorrow and really one of the only domestic economic releases that has much of a chance of moving markets given the current tumult regarding EU headlines, their accuracy, and how to trade them.

One of the most commonly used trading strategies in the wake of these headlines seems to be to grab firmly onto the hair of the lemming directly in front of you, try to keep up for a bit, and abruptly turn and go the other way whenever a EU headline crosses. Although this has caused a few lemmings to lose some back hair, it's prevented bigger problems as the whole herd hasn't managed to stay going in the same direction long enough to make it over any cliffs.

The key levels to watch going into tomorrow seem to be 2.07-ish as a mid-point for 10yr yields with 2.12-ish as support and anything lower as gravy, but perhaps 2.0 and 1.98 as the first notable points of resistance.

For MBS, we'd keep hoping for 101-26 to hold, although there's a bit further we could fall and STILL not have reentered the previous trend that governed most of October. On the upside, 102-00 is the first goal, then a noisy band of possible technical levels (102-03, 102-06, and 102-13) on the upside. That of course, assumes things are rallying after NFP (or on some EU headline), which, as is painfully obvious, is very much still up in the air.

October Scorecard

HUD Assistant Secretary Raphael Bostic said “The housing data in this month’s Scorecard illustrate how complex the market is and why the Obama Administration has chosen a variety of approaches to help spur recovery. Last month we saw a continued fall in mortgage defaults, due in part to our foreclosure prevention programs reaching more borrowers upstream in the process. And in the last quarter, a million more homeowners refinanced their loans under some of the lowest interest rates in history. But despite these signs of progress, we have much more work to do to reach the many households who still face trouble and to help the market recover. To help responsible homeowners, we have to make it easier for people to refinance at interest rates that are now near 4% – putting hundreds of dollars in real savings back in their pockets each month, and giving a boost to our fragile economy.”

Although Treasuries have been treading more sideways in the past hour, MBS have been gradually improving. IF this trend continues, we could see the "early crowd" offer small reprices for the better. If MBS fall below 101-29, the the deal's off. 101-28 and below would be good levels to set automatic alerts in Fannie 3.5's heading into the afternoon. Likely safe to float until then.