Stronger than expected employment data, via weekly Jobless Claims printing 348k versus a 365k consensus, combined with a poorly received 30yr TIPS auction, Greek/ECB bond swap news, and possible positioning ahead of a 3-day weekend with significant news waiting on the other end, sent 10yr yields higher and MBS prices lower at their quickest pace of the week on Thursday.  Volume was also as high as it's been since NFP day, edging out 2/9 just slightly. 

Bond Markets weakened at a leisurely pace in the morning when compared to the jolts from the bond swap news and TIPS Auction.  MBS had settled into a range that it likely would have been content to hold barring those latter events--sitting on a supportive pivot at 103-18.  But as it happened, the news that the ECB would swap out their Greek holdings over the weekend (theoretically a house-keeping measure to facilitate a smoother private-sector sign-up on Monday, fingers crossed), was enough to ratchet both MBS and Treasuries to the weaker side of supportive pivot points (10yr's version is around 1.97).

Recall the announcement on Wednesday that the Eurogroup will be reconvening on Monday Feb 20th (a domestic market holiday)to hopefully hold another vote on the Greek bailout.  We posited yesterday morning that this fact, combined with Auction supply in the week ahead could leave bond traders feeling a bit defensive heading into the 3-day weekend.  When things like yesterday's bond-swap news cross the wires, it gives one the impression that Monday's vote should be taken seriously if the ECB decides that NOW is the time (when they've certainly had the chance before) to get off the sinking ship.

Really, nothing has changed about these "defensive dynamics" except for trading levels.  Trading around 2%, 10yr notes are better insulated from more violent sell-offs, but given the prevailing range over the long haul, we're not sure it's quite high enough to be a no-brainer re-entry point without some significant motivation (by reentry point, we mean yields might not be high enough to entice buyers back into the market).  Once you start adding in that 3-day weekend+auctions+Greek vote business, we're increasingly skeptical that bond markets will find a big bid and come stampeding back down into the low 1.9's, or Fannie 3.5 MBS back up to 103-29.

The only hopes for such a thing happening would be a good combination of nasty European headlines--you know...  something that really flies in the face of yesterday's news and casts doubt on Monday's events--and lackluster economic data.  The only problem is that tomorrow's economic data include only CPI (is anyone really that worried about inflation at the moment?  We don't see it, but maybe a super tame core month-over-month reading could help out bonds to some extent) and Leading Indicators (no one cares, really...  In fact, L.E.I., we challenge you to move markets in one direction or another... ever!  If you do, we will pay attention to you!  Until then, you've been replaced by TIPS auctions apparently, as yesterday's moved the needle more than enough to pay attention next time). 

Seriously though.... Neither of these two reports stand a good chance to kick the day off in such a way that we'd see the same sort of "ratcheting" movements that we saw in yesterday's sell-off (i.e. periodic, noticeable pops in trading level).  It would take a serious European headline.  If we don't get one, we'd expect to be under pressure yet again, and thus, won't be much bothered to see another day in the red, knowing that it would be logical flow among bigger, broader currents.