Yesterday morning, we were hoping that bond markets would find near-term technical support from Friday's weakest levels.  Today, we're hoping for a different kind of support--also seen yesterday.  The technical bounce at 2.33 in 10yr yields was made possible by a strong rally in European bond markets and further stoked by the flames of the steepest day of stock losses in over a month.  With few other considerations on the calendar, bond markets should remain receptive to these exterior inputs.

When it comes to the stock/bond relationship, keep in mind that we've recently had a fair amount of distortion due the heavy slate of corporate bond issuance in November and the first week of December.  That's made for a situation where charts of stock prices and bond yields aren't sitting right on top of each other as they sometimes do.  But in this case, we can't necessarily conclude the so-called stock lever is any less connected.

In other words, more weakness in equities today wouldn't be a bad thing for bond markets.  The only meaningful Treasury-specific addition to the menu is the 3yr auction at 1pm.  When it comes to Treasuries impact on MBS, 3yr maturities are among the least relevant to the MBS that are relevant to rate sheets.  Still, shockwaves in that shorter section of the yield curve are still a consideration these days, if for no other reason than the last 2yr auction produced a visible reaction across the curve.

On a final note, tonight is "the roll" for Fannie and Freddie 30yr fixed MBS.  That means that December coupons will be retired and the prices on MBS live will subsequently reflect January coupons.  These are already trading and have been roughly 10/32nds lower than December coupons the entire time (just as February coupons are roughly 10 ticks lower than January, etc).  That means that prices will appear to drop tonight when January coupons take over as the representative for "MBS Prices" (at least insofar as Fannie/Freddie 30yr fixed are concerned).