Bond Bulls Find Little Motivation to Drive Yields Lower Before TSY Auctions

It's turning into a sideways, low volume afternoon.  With Japan out today, zero data,  and TSY auctions to come still this week, there is little motivation to forcibly trade yields lower.

A lack of bid-side demand in bonds is evident and it's likely to be more of the same into the afternoo. But further weakness should be contained as a recent failure of stocks to break through 1270 in S&P's is helping to keep treasury yields from breaking any higher from levels seen in the chart below.

Unfortunatel ywhile further weakness is unlikely, MBS have still fallen to their lows of the day.  It's really not very likely that this could result in a reprice for the worse considering the highs of the day barely reached 102-27.  Our initial reprice target this morning was centered on 102-18.  However, it's not unheard of for a lender or two to unexpectedly reprice for the worse when MBS hit or tick below their worst levels of the day which MBS just have.

But if reprices were to happen, they would not be justified at this point, let alone unexpected.  The focus of the week is certainly shaping up to be squarely on the auctions in the days to come.  It's very much a "wait and see" environment in which there isn't much reason for yields to move any lower than they have and neither has their been reason for a benchmark 10yr note to move above 3.33 until the auctions have their say.  Out of the small volume seen today, brief spikes of volume above the averages have continued to support this range.