Yesterday

- Bond markets began the session weaker in Asia, weaker still in Europe

- MBS opened 8 ticks (.25) lower and traded sideways until 10am ISM data

- After ISM, MBS lost another eighth quickly and another eighth slowly

- Fannie 3.5s half a point weaker by close, 10yr yields up over 2.80

- Mortgage Rates highest since before September 18th ("no taper" Fed Announcement)

Today

- Only day of the week with no significant economic data

- Technical indicators leave more room for weakness

- But any weakness is likely to remain moderate without more fundamental motivation

Strategy

As Friday's jobs report approaches, we're left to ponder how much weakness we might see in MBS and Treasuries without actually getting the strong employment data that markets increasingly defend against.  In other words, part of the current weakness is meant to preempt a strong jobs report.  So how much preemption is needed?

If technicals are any guide (and they've been fairly well-behaved of late), here in the range of 2.81-2.84 10yr yields, we'd be getting fairly close to encountering support.  That means that if you were to completely shut off all inbound data and event information and leave markets to their own devices, 10yr yields would be reasonably likely to top out just above current levels.

Of course we can't fully shut off data and events, but today's session comes close.  It's the slowest day of the week by a wide margin.  While it's not overly likely that rates will want to stampede back to the promised land given the heady events on the horizon, neither are they likely to stampede outrageously higher.  This leaves some measure of hope on the table for those inclined to lock ahead of Friday's NFP that data on Wednesday and Thursday could offer some counterpoint to the recent trend, but be aware that this is not without its risks, if for no other reason than tomorrow morning's data is serious enough and arrives early enough to put a big damper on the first rate sheets of the day.

Charts

Yesterday, we discussed the technicals for rates as being "negative until proven otherwise."  Today is a pretty logical follow-up to that with the same charts.  This time, it's a bit easier to visualize the "room to run" for the the negative technical patterns.  Keep in mind, there's never any guarantee that rate WILL run higher, but if they do, they would likely be encountering technical resistance fairly soon (less than 5bps overhead in terms of 10yr yields)