The Day Ahead: 10yr Treasury Auction and FOMC Minutes

Bond markets spent another day correcting from Friday's post-NFP rally (moving higher in yield), but this time at a somewhat slower pace.  In fact, there's as much of an argument for a horizontal show of support (see the red line in the chart below) as there is for an ongoing trend higher in yield.  The stock lever continued to be a relevant consideration amid a lack of data.  

All that having been said, we're not reading too much into any movement so far this week as it's all had more of an incidental feel to it.  Recently, we've seen the stock lever link up either during broad-scale Eurodrama or when bonds aren't exactly sure where they want to go next.  Picking a winner among those options is easy considering there's no broad scale Eurodrama at the moment.  

Just because bond markets aren't sure where they're headed next doesn't lessen the gravity of the situation.  In other words, big decisions are potentially being made.  Specifically, 10's may either be returning to the boundaries of a longer term uptrend, or may be using the 1.75+ level seen above and below as an inflection point for another push lower (red and orange lines are 100 and 200 day moving averages respectively):

Whether or not that 1.75 level is able to hold steady ahead of the afternoon's 10yr Auction remains to be seen, but it would be a bullish eventuality if so.  That goes off at 1pm.  After that, we get the only other major event of the day with Minutes from the latest FOMC Meeting/Announcement at 2pm.  That announcement wasn't much of a market mover and the Minutes aren't expected to be either.  The counterpoint to this is that sometimes FOMC Minutes contain the biggest hidden tape bombs.  

Lastly, poor MBS prices...  The roll has taken it's toll and we no longer have the "104" handle.  On the bright side, 103-24 is part of a potential inflection zone for MBS prices with clear instances of resistance ceilings in 2013.  A green day would continue to reinforce a possible bounce.