Today was a good test for MBS and Treasuries.  It spoke volumes to the current state of play in bond markets: traders are afraid to get too short ahead of next week's ECB Announcement ("getting short" equates to higher rates).  Traders may also be afraid to get too short in general, simply because that decision is nearing Pavlovian levels of association with PAIN so far in 2014, but especially in the month of May.

Information on trader positioning becomes available in more detail after the fact.  For instance, the most official report on trader positions is released on Friday, yet surveys the positions as of Tuesday.  Consequently, today's report can only really tell us how things were situated on Tuesday.  It's no surprise to find out that. at that time, the institutional money management community was increasingly SHORT in 10yr Treasuries while the tactical trading contingent was pushing for lower rates.  As our recent analysis assumed, short-covering was a big part of the Wednesday and Thursday rally.

This also makes it less of a surprise to see a fairly tame correction yesterday and effectively no further weakness today.  Traders are afraid to be too short! 

With the end-of-month trading considerations out of the way, we could see a bit more bravery next week, but we also get more relevant economic data in the mix.  Based on the last few days of trading along with super long term technical levels, 10yr yields are keep to treat 2.47, or thereabouts, as a home base--exploring the surrounding area from there, but returning by default, and finally making a decision on where to move next after next week's ECB/NFP combo.  Of these two events, it's actually Thursday's ECB announcement that reserves the most market-moving potential.  Big enough news from the ECB (or a big enough lack of news), trumps most any NFP result, though the latter will always have an immediately noticeable effect on Friday morning's trading levels.