Good Morning. Happy Monday.

The bond market moved sideways for the most part last week, that is until Friday morning when the SEC announced it was filing civil charges against Goldman Sachs for misrepresentation tied to subprime mortgages. This tapebomb caught the market off-guard and resulted in broad based stock selling which forced money to seek out a safe haven in risk-free Treasuries. The re-allocation of funds into benchmark TSYs helped "rate sheet influential" MBS coupon prices rally and allowed lenders to reprice for the better.

The FN 4.5 ended the day +0-12 at 100-17 yielding 4.443%. The secondary market current coupon was 4.433%. The CC yield was 66.3 basis points over the 10 year TSY yield and 69.5 basis points above the 10 year interest rate swap.  The 10 year TSY note was +0-17 at 98-26 yielding 3.77%.

 The effect of the GS news is obvious. 10s were range bound all week before news of fraud charges hit the newswire.

Asian equity markets were closed on Friday when the SEC announced its civil case against Goldman, thus today was their first opportunity to price the news into asset valuations...which they did in size overnight. The SHANGHAI was down 4.79%, the HANG SANG fell 2.10%, the TOPIX lost 1.82%, the KOSPI shed 1.68%,  and the NIKKEI moved 1.74% lower.

This didn't have much of an effect on "rate sheet influential" benchmark TSYs. The 10 yr note ticked sideways overnight and is currently testing the high side of Friday's post-GS newsbreak.

The FN 4.5 is -0-02 at 100-15 yielding 4.451%. The secondary market current coupon is 4.441%. The current coupon yield is 66.5 basis points over the 10 yr note yield and 69.8 basis points over the 10yr interest rate swap.  Yield spreads are basically unchanged from Friday's "going out" marks.

REPRICES FOR THE BETTER AROUND 100-24

REPRICES FOR THE WORSE AROUND 100-10

The week ahead is wide-open with the econ calendar essentially empty until Thursday. Before then we get Goldman Sachs and Wells Fargo earnings. With media attention now firmly focused on financial reform and further GS fallout, expect main street to scream injustice and inequality after we learn that Goldman's FICC Q1 earnings (trading) "knocked it out of the park".  Last but not definitely not least, on Thursday the Treasury will announce the terms of next week's coupon auction supply. We get 2 year notes next Tuesday, 5 year notes next Wednesday, and 7 year notes next Thursday. Also added to the mix with be a 5 year TIPS offering on Monday. CDO chaos will cloud the bond market's true bias, but this round of coupon supply will undoubtedly be a major consideration for interest rate strategists in the week ahead.

HERE is the full calendar

The obvious leading candidate for the market's strategic motivation will be CDO contagion and continued stories of misrepresentation and market manipulation. Whether or not this was an isolated event or broad based financial fraud is now the biggest issue.

Politically, I view the timing of this event as unfortunate. We are in the midst of one of the most important regulatory reform era's in our great nation's history, it would be an utter shame if this event was leveraged to serve political purposes. I am 100% supportive of regulatory reform, but only if the incentive to invest is not hindered and our current form of capitalism is not converted to Orwellian Democratic Socialism. Big Brother is watching....

Thinking about market levels specifically, I am curious how cheap stock traders will let equities get before resuming the relentless rally.  If risky assets catch a bargain buyer's bid, benchmark TSYs and MBS coupons will lose a portion of their recent rally and lenders will reduce rate sheet rebate. Stay defensive in this sensitive environment....