MBS Day Ahead: Limited Calendar But Important 10yr Treasury Auction

As bond markets get back to business today, the afternoon's 10yr Note auction will be important one way or another.  Actually, that could be said with more certainty about the week's auction cycle as a whole (which includes tomorrow's 30yr bond auction), but clues could certainly come today. 

The auction is informative because we're waiting to find out how much of the recent weakness may be driven by cautious preparations for it.  Certain bond market participants are forced to buy Treasuries at auction.  Because of that, it's not uncommon to see a concession traded in to prices ahead of time.  Simply put, traders are making room for the bonds they know they'll soon be forced to buy, and also doing their best not to contribute to rising prices ahead of time (higher prices or lower yields).

It's entirely possible that we won't see some enlightening post-auction trading momentum, or that we'd have to wait another day for it.  If we merely see an ongoing drift into weaker territory even after the auction, it would make a stronger case for abandoning whatever hope was engendered by last Friday's big bounce.  In other words, if 10yr yields are pushing over 2.40 after today's auction, abandon ship!

Speaking of pivotal levels, here are 3 of the best ones to watch, apart from 2.40.  The teal lines are at the same level on all 3 of the charts (2.38, 2.35, and 2.30).  The progressively wider points of view show how much of an inflection point this zone has been over the months and years.