Stocks, bonds, and MBS continue to drift sideways in after hours trading at 1280 in the S&P 3.337 in the 10yr, and 102-14 in FNCL 4.5's. Any lenders who have been hiding in the shadows in terms of reprices today may give it some more consideration this afternoon.

3.339 was just reached in 10yr notes, and FNCL 4.5's are back up to 102-14. Pretty Sideways overall at this point. Stocks meanwhile are down to 1280 in the S&P.

It's a newer, slightly weaker range this afternoon, decidedly outside the trend channel that had prevailed (mostly) until now. MBS have held relatively strong versus the backup in benchmarks however, as the FNCL 4.5 is at 102-12 as opposed to trading under 102-10 on the previous occasion that the 5yr note traded over 1.94 or that the 10yr note over 3.35. So we're not risking reprices for the worse, although the driving forces behind reprices for the better have waned.

(Reuters) - The United States and China reached agreement on export deals worth $45 billion including a major contract with Boeing (BA.N), the White House said on Wednesday at the formal start of Chinese President Hu Jintao's state visit. The agreements included China's final approval of a $19 billion contract to buy 200 Boeing aircraft for delivery between 2011 and 2013, which U.S. officials estimated would support 100,000 American jobs. Other deals involved Honeywell (HON.N), Caterpillar (CAT.N) and Westinghouse Electric, a unit of Japan's Toshiba Corp (6502.T). Chinese officials told the Obama administration that Chinese companies had signed 70 contracts worth $25 billion in U.S. exports from 12 states, U.S. officials said.

Just after 1pm, the 10yr ticked higher in yield at a healthy pace, moving from 3.33 to just over 3.36 in a 20 minute span. During that time, 4.5's fell only to 102-11, which gives the MBS chart a nice pivot point to monitor into the afternoon.

We are seeing current coupon MBS yield spreads tighten as benchmark TSYs approach their best levels of the day. "Higher and Tighter" is not normal behavior for production MBS coupons and it suggests focused demand is giving "rate sheet influential" MBS an extra boost. Based on recent price action and the generally unchanged shape of the yield curve, we'd assume this additional strength is coming from fast money day traders as opposed to duration sensitive real money buyers.

The two day trend channel in 10yr notes CONTINUES onward despite a breakout around 9am this morning. After hooking back up with the channel, the outer trendlines have provided a good range for yields. MBS FNCL 4.5's dipped momentarily from their 102-14 highs, but are back at those levels now. Reprices for the better are trickling in now.

We just stepped into "reprice for the better" territory for a greater number of lenders. 4.5 FNCL's are up to 102-14 now, which is high enough to be on the lookout for additional reprices for the better (not additional reprices for the same lender in most cases, but more likely among lenders who have not made any changes yet today). The last caveat is that this move up would need to prove to be something other than a brief outlying spike. In other words, if 4.5's quickly return to 102-10, the deal's off.

As expected, lenders have indeed had to confront the prospect of repricing for the better early in the day owing to the early weakness. Volatility has declined into the afternoon as MBS and treasuries trade in narrowing ranges. 10yr notes have the challenge of breaking appreciably into the 3.33's, a feat which has eluded them thus far. For MBS, it's a break appreciably above 102-10. While we do currently sit at 102-11--the highs of the day--it's the "appreciably" part that remains to be seen.

FNCL's are currently up 2 ticks on the day at 102-10, but have had a hard time getting any higher so far today. In fact, each time 10's have made new highs at 3.35. 3.34, and below, 102-10 continues to cap out MBS. 10's on the other hand continue to operate within their slightly positive trend channel with the exception of the temporary breakout this morning around the 9am hour. The 2s/10s yield curve is a modest 1bp flatter at 277bps wide. Production MBS coupons are being outperformed by benchmark guidance givers.

C30 loan pricing is 25.9bps worse on average today and buydowns are 1.3bps more expensive. The largest rebate reductions are seen in the note rates used to fill 4.0 MBS trades. Week over week loan pricing is 6.4bps worse and buydowns are 0.8bps richer.

Far too early for a conclusive decision, but after touching the lower end of their 2 day trend channel at 3.34, 10's moved back to the other end of the channel. Rather than move higher to test earlier morning highs, they hooked back up with the trend channel support line, and bounced just over 3.336. So far, this bounce is intact, and if it can be confirmed by a move back down into the 3.33's, it's a promising technical development. MBS would also be better equipped to rally if that sort of directional stability emerges in benchmarks. Overall caveat: still far too early to tell, but something to watch and hope for...

Out of the gate the S&P is down from just under 1295 to 1291.4. Benchmark 10yr notes have recaptured nearly all their losses from the previous high, currently at 3.3507. FNCL 4.5's are up sharply to 102-10. Lenders that prices with MBS near the lows will now potentially be faced with the prospect of needing to reprice for the better if recent gains can hold above these levels.

To be fair, there were arguably two separate instances yesterday where volume in 10yr futures rose during support bounces, the first at 120-16 and the following at 120-08.We did see our first reasonable attempt at a support bounce a few minutes ago right at the 120-16 level (3.374 in 10yr cash, noted yesterday as the AM pivot). And although prices had fallen since then, they've since returned. 3.385 is the high yield mark so far today in 10yr notes. We're currently at 3.374.

The Commerce Department said " increases in the numbers of housing units authorized by building permits in the Northeast and West in December 2010 may be related to changes to state building codes for new residential construction effective in January 2011 in California, Pennsylvania, and New York."

After a heated midterm election, the Republican-led House will try to fulfill a campaign promise later today and cast votes to repeal the nation's sweeping health care law. Passage is expected, given the GOP's comfortable majority in the House. But Senate Majority Leader Harry Reid has vowed to block the measure and President Obama has threatened to veto a repeal bill.

We have a great example on our hands of how to use trend channels. They are not a PREDICTIVE tool (i.e. they, in no way, indicate that the trend will continue) but rather, are watched so that we have an indication of a shift in a previous trend. The short term channel in benchmark 10yr notes just broke with yields moving higher. FNCL 4.5's are down some more as well, at 102-03. On the off chance you have rates already today, reprices for the worse may already be possible as we're down 8 ticks from the morning's highs. Otherwise, the AM weakness should be baked in to sheets when they come out.

(Reuters) - The mortgage servicing industry should fund a new commission to compensate homeowners who have been kicked out of their homes because of errors made by servicers, a top U.S. banking regulator said on Wednesday. Federal Deposit Insurance Corp Chairman Sheila Bair said this claims commission could be modeled on those created to compensate victims of the BP oil spill and Sept. 11, 2001 terrorist attacks. In a speech outlining proposals for broad reforms to the mortgage servicing industry, Bair said she expects the industry to oppose such a commission but argued that this reluctance would be shortsighted. "Every time servicers have delayed needed changes to minimize their short-term costs, they have seen a deepening of the crisis that has cost them - and the rest of us - even more," Bair said at an event hosted by the Mortgage Bankers Association.

10yr yields moved several bps lower this morning, but met resistance in line with the trend channel we discussed yesterday, and have since risen a bout 1 bp to 3.35+. You can get a clear picture of the trend channel and it's continuance this morning by pulling up the 2 day chart in 10's. FNCL 4.5's are in a channel of their own, but a more sideways one, and are currently unchanged at 102-08. Housing Starts data has had little effect on bonds thus far.

BUILDING PERMITS: Privately-owned housing units authorized by building permits in December were at a seasonally adjusted annual rate of 635,000. This is 16.7 percent (±2.1%) above the revised November rate of 544,000, but is 6.8 percent (±2.8%) below the December 2009 estimate of 681,000. HOUSING STARTS: Privately-owned housing starts in December were at a seasonally adjusted annual rate of 529,000. This is 4.3 percent (±14.1%)* below the revised November estimate of 553,000 and is 8.2 percent (±14.4%)* below the December 2009 rate of 576,000. HOUSING COMPLETIONS: Privately-owned housing completions in December were at a seasonally adjusted annual rate of 585,000. This is 4.1 percent (±17.7%)* above the revised November estimate of 562,000, but is 22.2 percent (±11.3%) below the December 2009 rate of 752,000.

(Reuters) - President Barack Obama and his Chinese counterpart Hu Jintao will confront stubborn rifts over North Korea and bilateral economic imbalances on Wednesday when they meet amid the pomp of a formal state visit. Hu's visit is not expected to yield major breakthroughs on key disputes but the United States and China planned to announce a deal to boost cooperation on nuclear security, a U.S. official said on Wednesday. Both presidents have vowed stronger cooperation between the world's two largest economies in an effort to bridge the strains of the past year over human rights, Taiwan, Tibet and the gaping U.S. trade deficit with China. Taking major strides toward narrowing these disagreements, however, will test the depth of their partnership.

(Reuters) - Wells Fargo & Co (WFC.N), the fourth-largest U.S. bank, reported a 21 percent increase in fourth-quarter profit, helped by double-digit revenue growth in multiple business units and lower credit costs. The San Francisco-based bank said earnings rose to $3.4 billion, or 61 cents a share, from $2.8 billion, or 8 cents a share, a year earlier. Analysts on average expected a profit of 61 cents a share, according to Thomson Reuters I/B/E/S. Revenue increased 12 percent to $21.5 billion. Wells report $158 billion in mortgage applications taken in the 4th quarter.

NEW YORK, Jan 19 (Reuters) - Applications for U.S. home mortgages increased last week as interest rates dipped to their lowest in a month, an industry group said on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity rose 5 percent in the week ended Jan. 14. The MBA's seasonally adjusted index of refinancing applications gained 7.7 percent last week, and the gauge of loan requests for home purchases fell 1.9 percent. Fixed 30-year mortgage rates averaged 4.77 percent in the week, down 1 basis point from 4.78 percent the prior week. The rate is down from 4.93 percent at the end of December.

(Reuters) - Goldman Sachs Group Inc on Wednesday posted a decline in quarterly profit, in part reflecting lower results in fixed-income trading. Fourth-quarter net income after payment of preferred stock dividends totaled $2.23 billion, or $3.79 per share, compared with $4.79 billion, or $8.20 a share, a year earlier. Analysts on average $3.76 per share, Thomson Reuters I/B/E/S said.