It's a bit of a predicament that bond markets find themselves in at the moment, having looked very serious about breaking the recent trend higher in rates only to potentially already be finding resistance.  In simpler terms, rates have been moving up, then Italy made it look like they might go down again (hopes for a coincident equities sell-off fueled speculation), but rates now look to have had a serious problem moving lower past some important resistance and there are multiple eventualities for the coming days.

We published a chart (HERE) that noted numerous internal trendlines that weren't pictured.  Now it's time to picture them (though you'll see why we left them out... clutter)

Now, let's take two of those yellow lines back out to show how the most central line in the trend may be acting as support:

So clearly, the teal trend was indeed tested and broken, but after the one big day of Italy reaction, we've failed to follow-through to the downside (this has played out as a failure to close above the important 103-16 level for Fannie 3.0s in terms of MBS).  We're uncomfortably close to that trendline now, but in the event of positivity this morning, can keep an eye on it for ongoing support. 

The risk is that persona of the bond market is no longer debating whether or not to adhere to certain trends higher and lower, but rather to make a much bigger decision about which side of the long term inflection point to call home.  Although late December and early January trading obscure this fact, 1.84 or thereabouts has been the center of an epic inflection point between the great range trade of 2011 through early 2012 and the range that followed the May 2012 Greek election fallout.  Stepping back for a moment, we see that recent trading could be viewed as a bid to re-enter that old-school range and thus are forced to consider Wednesday's resistance bounce as a horizontal denial of reentry to greener gardens.

We're under no illusion that Treasury yields and 1.842-ish will continue to share the same magnetic charge that has largely prevented them from being very near each other for very long, but until that happens, it's interesting to consider.  If 2012 does end up being a long term low for yields, it increasingly looks like the mid 1.8's will play a roll in confirming that bounce in the early stages.  The more technical trading activity we see around that level (especially the kind we saw on Tuesday and Wednesday, which had big, clear, high-volume rejections), the longer we'll continue to pay attention.  Just looking at the last 2 years and the last 2 days, it seems like a pretty serious floor to have left intact so far this week.

Today's economic data would have to swing and miss fairly big in order to see another run at that floor, unless it has help from Europe or a freakishly surprising sequestration headline.  Barring surprises, market movement is left to GDP and Jobless Claims in the morning, followed by Chicago PMI at 9:45am.  This is the first revision to Q4 GDP and is expected to turn the thing positive (+0.5 vs -0.1).  Jobless Claims are seen coming in at 360k vs 362k previously.