Bond markets traded poorly on Thursday, sliding back to their weakest territory since before the Italian election.  In the intervening time, things have gone about as well for rates as they have all year, but in the space of only a few days, the positivity has been undone.  This raises the risk that the recent bounce back above 103-00 in Fannie 3.0s and below 1.95 in 10yr yields was only ever about an overly-cautious reaction to Italy.  Certainly, there hasn't been much else to suggest a sincere bond market rally apart from that.

With the Employment Situation coming up today, the absence of a reason to rally essentially means that bond markets will be confirming one of several potential trends higher in rate.  In short, it would be another failure to turn the corner and another nail in the coffin of all time lows.  Here's a look at the trend channel in 10yr Treasuries that we've charted most frequently (with and without the two internal trendlines:

Just sort of shooting from the hip, such a trend would put near-term best and worst case scenarios around 1.85% and 2.10% respectively.  MBS would probably interpret those as 103-18 and 102-00 respectively, roughly a 25 tick run in either direction.  With mid-month updates looming for Italian politics (Napolitano may install another government), there's certainly no guarantee that we see such extremes on a humble little Employment report.  Then again, the past two March reports have beaten big (both vs consensus and vs  ADP), and that upper trendline in the chart above looks dangerously close if that happens for a third year.