Things had been pretty tame for MBS and Treasuries after the last round of excitement ended on May 15th.  That was when the last major rally ended and when bond markets began consolidating in a mostly sideways pattern. 

As early as yesterday afternoon, 10yr Treasuries began breaking out of their consolidative range, though the move still faced a bigger test at 2.47.  Yields moved quickly down to 2.47 this morning and paused for consideration before breaking to the the lowest levels since July 3rd 2013.  MBS moved to their best levels since June 19th 2013.

Any time we see surprisingly aggressive moves like this--any time trading levels are pushing the edges of longer-term ranges--it's good to remember that momentum tends to build on itself the more those ranges are broken. 

For instance, if one trader who was betting on higher rates will be forced to cover if rates fall to, say 2.46%, when that trader buys Treasuries to cover their position, it brings yields lower.  Let's say that purchase brought yields to 2.458 and that a another trader is now forced to cover their short position, and the cycle continues until a big chunk of those short positions are flushed out of the market.

We've seen two rounds of that sort of "flushing" so far this morning with the first point of equilibrium being reached around 2.47% and the next at current levels (around 2.44%).  On a long-term basis, 2.47 is the leading edge of an inflection range seen in the following chart.  The next significant level is 2.42, followed by 2.33.  Basically, the rally suggests moving the yardsticks that had been at 2.47 down to 2.42.  If that's broken, we'd move the sticks to 2.33--levels consistent with mortgage rates in the high 3's.