*** /MBS/JAPAN: Traders cited........>

US TSYS/SUPPLY: *** /MBS/JAPAN: Traders cited "very good foreign selling" in

overnight action after cash 10-year note broke over 2.40% Tues and then 2.42%,

finally hitting 2.456% in Uk trading, before recovering. (Recall that Japanese

accounts hate to buy a "falling knife" market; but now will relative late

morning stability help today's 2Y FRN or 5Y auction demand if recent calm

holds?) 

- Tsys slid once again in NY morning action, hitting 2.474% session high yield

at 8:46 a.m. ET before recovering, now at 2.457% yield; nervous Tsys longs are

watching 10Ys. 

- Tsys then drew mild bid support as the US$ "ticked down from its highs" vs.

the Japanese yen, said one trader. "But there are a massive amount of Tsys longs

who are getting nervous" due to the recent weak technical action, said the

trader.  

- Recall both MBS and US Tsys traders eyed 2.50% and 2.60% for Tsys technical

purposes; and as a fast severe break ABOVE those yield levels could spur the

MBS-tied convexity sales/hedging/swap paying, etc., said traders.