Pre-Auction Concessions Obvious. MBS at Session Price Lows

The Treasury Department will announce the results of their $24 billion 10yr note fundraiser at 1pm. Pre-auction price/yield concessions are obvious as well as little post-auction hangover following $32 billion 3s yesterday in a "bid wanted" trading environment. 

The "When Issued" 10yr note, which is basically a forward pricing mechanism for the auction, is up yielding 2.563% and bids are still getting hit.   The "on the run" 10 year note is currently -3/32 at 100-15 yielding 2.57%.

Looking at the charts, 2.57% is where we should start to see bargain buying but 2.59/60% is a more likely source of support. That said, with the data calendar limited and liquidity lacking I again remind that it would not be a surprise to see 10yr yields make a run toward 2.67% again.  At least leading up to the $16 billion long bond refunding tomorrow. Remember the long bond is expected to be the weakest spot on the curve because the Fed has limited their asset purchases to the 2 through 10 year sector.  On our side we've got the Fed announcing its asset purchase schedule tomorrow at 2pm.  The range should contain rates and prevent consumer borrowing costs from entering a more sustained upward trend.

Pre-auction concessions are indeed pulling "rate sheet influential" MBS prices lower. The FNCL 3.5 is -7/32 at 100-06 yielding 3.485% and the FNCL 4.0 is -6/32 at 102-29 yielding 3.56%.  These are intraday price lows/yield highs. I've got the current coupon marked at 3.523%...slightly tighter vs. 10yr TSYs, 10yr swaps, and 5yrTSY.

Plain and Simple: Short term volatility is expected. Do not panic when we test the other side of the range again. It's a trader's world and traders are bored but are still largely long.