The morning has been a bit bumpier than the previous two for bond markets for several reasons--not the least of which being that prices have fallen whereas they have improved on the other two days.  Even before the auction, prices got choppy and reprice risk picked up.  The choppiness was facilitated by an extra light volume/liquidity environment.  When both are light, random volatility is the more frequent result as opposed to the high volume/low liquidity environment that produced the snowball selling seen in recent mega sell-offs. 

Those generalities are holding up today as the morning selling quickly bounced higher, and then lower again to level off in the same range.  Markets have since chewed through today's 10yr auction with little difficulty.  The auction itself was less than stellar, but not out of line.  Regardless, the proof is in the pudding and 10's have held their ground since 1pm.  It's assumed that trading levels are better-contained at the moment due to impending FOMC Minutes at 2pm and a seperate Bernanke speaking engagement at 4:10pm.  Here are MBS and Treasury marks as of 1:11pm courtesy of MBS Live:

Morning Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribers this morning.

9:26AM - Drastically Slower, Quieter Trading Ahead of Afternoon Events  
To give an idea of how much things have slowed since Friday, here are the total 10yr Treasury futures contracts traded in the 8-9am hour on each day since then:

- Friday: 489k
- Monday: 160k
- Tuesday: 125k
- Today: 60k

So not only is today's session 8 times slower than Friday, but it's even twice as slow as yesterday.

As noted in the Day Ahead, if we're witnessing anything other than an unofficial week off for markets before things get serious in the coming weeks, we'll find out later this afternoon. The extra increments by which volume is lower and slower likely have to do with those events in either case. In other words, whether we see a huge reaction or not much at all, subdued trading activity still likely stems from the juxtaposition of the 10yr Auction, FOMC Minutes and a Bernanke speech at 1pm, 2pm, and 4:10pm respectively.

Overnight trading was uneventful with 10yr yields holding perfectly inside their highs and lows from the previous domestic session. The only significant news during Asian hours was weaker Chinese trade data, but even that only amounted to a modest 2 tick drop in yields.

10's hit the domestic session in just slightly better territory than yesterday's latest levels (but again, no better than yesterday's best levels). similar story for MBS where Fannie 4.0s opened up in line with yesterday's close and have scratched out 2 ticks since then with Fannie 4.0s at 103-10.

 

 9:51AM - MBS LIVE ALERT Down Enough For Reprice Risk Already

For any lenders out with rates around 9:30am or who otherwise have access to overnight price protection, Fannie 4.0s are now down 5 ticks on the day to 103-03 off earlier highs of 103-11. This could be enough for some negative reprice risk. 10yr yields are up from 2.62 to 2.647. Trading is thin and it's taking very little conviction to move prices. This is not necessarily indicative of 'more to come,' but for now increases negative risks.