The market has been a little tipsy this morning, primarily on the Housing news and the start of the FOMC meeting (interest rate change and policy statement 6/24 at 1:15 pm cst).  Details of today’s 2 year note auction just hit the tape.  40 billion crossed the screen with a strong bid to cover ratio of 3.19 to 1, yield at 1.151%, and 68.7% going to indirect bidders (very strong).  So far, so good as Uncle financing our debt.

Tomorrow will be a key day with the 5 year note on tap and the FOMC results due out one hour later.  We priced with MBS (4.50%) coupon down 3/32’s.  Currently we are off 4/32’s but at one time were plus 1/32nd.  Once again, they just won’t sit still.  Technically, the bounce from this morning’s low is encouraging for the bulls.  Bond buyers have good daily signals to lean on but weekly charts are still bearish.  This will keep buying momentum at a minimal.  Mortgage pricing translation; don’t expect reprices for the better of any great proportion.

The fundamentals, auction supply, and a guess your best FOMC support a both hands on the wheel approach.  Good support lies at 3.71% (currently 3.65%) with resistance located at 3.60%.  We expect the market to remain trapped in between the two until this time tomorrow.  For now, let’s call the market “cautiously optimistic”.