MBS MID-DAY: Under Moderate Pressure Ahead of 5yr Auction; Stock Lever in Play

Overnight Treasury trading was nothing to write home about.  10yr yields began the day very close to 'unchanged' after initial weakness during Asian hours.  European hours were friendlier, with help from slightly weaker data in Germany, accommodative talk from ECB President Draghi, and concerns over Greece's potential early exit from it's stimulus package.

This morning's musings on the stock/bond correlation turn out to have been timely as the stock lever is very much in play so far today.  S&Ps weakened into 10:30am and moved quickly more than 10 points higher from there.  As stock prices bottomed, so too did Treasury yields.  Both then proceeded to the highs of the day in relative lock-step and both have leveled off since then.

This afternoon's 5yr Note Auction also seems to be adding to the general weakness in bond markets.  5's have been leading the charge today, and apart from 2's, are the only maturity that's back at yesterday's highs (2's have an excuse as they were auctioned yesterday, which tends to result in higher yields the following day for reasons that are similar to MBS ending up with lower prices after 'the roll').