Good Morning. What a great National Championship game. Congrats to Duke. Now that college basketball is over I can devote all my energy to hockey. CAPS vs. pens tonight!

Overseas rates traders came back to work today to find much cheaper bond prices and higher "risk free" yields thus, "rate sheet influential Treasuries benefited from a high volume bargain buying bid overnight.

The 3.625% coupon bearing 10 year Treasury note has rebounded sharply off of long-standing 4.00% support...currently +0-10 at 97-12 yielding 3.947%.

 The bargain hunter's rally in benchmarks has provided some positive price guidance for "rate sheet influential" MBS coupons this morning. The FN 4.5 is +0-08 at 99-16 yielding 4.567%. The secondary market current coupon is 4.59%. The CC yield is 64 basis points over the 10 yr TSY note and 62.5bps over the 10yr swap rate.

Greece just cannot keep itself out of news headlines. From Reuters:

Market News International quoted unidentified senior Greek government sources as saying Athens wanted to amend the deal struck at a European Union summit last month to bypass an International Monetary Fund contribution because it is concerned that the IMF would impose tough conditions.

A senior finance ministry official told Reuters on Tuesday : "There is no request from Greece to renegotiate the agreement. There is a deal on the support mechanism and we are sticking to it,"

This helped moved some "flight to safety" funds into US Treasuries. Expect to hear more about Greece in the days to come....specifically about them trying to raise $5 to $10 billion from US investors to help them cover their May borrowing needs of about $13.5 billion (to roll over maturing debt plus interest)

Onto something more fundamentally relevant. The San Francisco Federal Reserve released an Economic Letter yesterday titled: The Housing Drag on Core Inflation

The moral of the story:  "Some analysts have raised the question of whether the unprecedented declines in house values, which have been the hallmark of the recent recession, might be artificially dampening core inflation readings. However, a close examination of recent inflation data shows that the weakness in housing costs is representative of a broad pattern of subdued price increases across most consumption goods and services and is not distorting the broad downward trend in core inflation measures."

Plain and Simple: macroeconomic deflationary pressures are not exclusively a function of a downward spiral in housing prices. Deflationary devaluations are spread out over the entire economy. The Federal Reserve does not need to raise the Fed Funds rate right now. If anything the Fed needs to push banks to more efficiently distribute wealth down the supply chain to consumers and small businesses. There is a clog in the distribution of wealth!

Lets hope the release of the FOMC minutes later today has a clear cut "INFLATION IS NOT A CONCERN. THE FED FUNDS RATE WILL STAY BETWEEN 0 AND 0.25% FOR AN EXTENDED PERIOD" message embedded. This will help alleviate stress on the short end of the yield curve and allow levels in the long end to come down a few more basis points

NEXT EVENT: $40 billion 3 year notes at 1pm. This issue looks pretty cheap. This auction should go well. The 10 year note auction tomorrow is more important though...

The outer limits of the range are still holding. Expect bond traders to be a bit apprehensive about getting too excited for this bargain buyer's rally though.  Market participants must feel out what other desks consider  "cheap" and be attentive to how interested they are in accumulating inventory at these yield levels. This implies, before we head back toward the 3.57 to 3.85% range, we should see profit taking and a re-evaluation of sentiment.

One day at a time still...