As we frequently discuss, 10yr yields are the best technical benchmark for how rates are moving even though mortgage rates themselves are directly informed by MBS.  As such, the policy is to look first at the general trend presented by Treasuries and make note of any major departure in MBS.

The last few sessions have been a major departure.  We can fairly safely assume most of it is driven by the newfound "love" for MBS introduced by Dudley on Tuesday.  He basically said the Fed should change its stance on ending reinvestments on its holdings so that it's not the first thing that happens after tapering wraps up. 

Previously, we'd heard from Bernanke himself that the Fed wanted to get back to a "predominantly Treasury portfolio."  Nothing has happened to suggest the longer term goals of the Fed board have changed, but this would delay that process and afford MBS more time to receive steady demand from the Fed.

With that in mind, MBS are right in line with yesterday's highs of 102-17.  Those highs were achieved right at the close. 

Treasuries, on the other hand, hit their best levels yesterday right at the open--2.525.  Now they're up to 2.55--very close to the highest levels of the past two days.

Today's events haven't done much to change anything for anyone.  The data was slightly weaker than expected with Claims coming in at 326k vs a 310k forecast and Existing Home sales just a hair under consensus.  Much like the Housing Starts data, today's Home Sales were propped up by non-SFRs. 

On balance, the data should be bond-market-positive, but tradeflows and technicals are proving to be a stronger consideration, possibly with an eye toward the extended weekend and next week's Treasury supply (auctions).