After falling early, the bond market is regaining its balance with the 10yr yield now at 3.445. The support bounce came very much in line with the expected support levels we outlined earlier. 101-28 has been similarly supportive for FNCL 4.5's of late and we saw it hold firm again this AM. 4.5's are now at 101-29, so we're not out of the woods indefinitely, but at least we are seeing the range come in to play in a predictable way. Reprice risk is slightly diminished but still present.

Treasury and MBS prices are falling sharply after a better than expected ISM report. 10yr yields have immediately moved to test the upper limit of their recent highs at 3.465. FNCL 4.5's are now down 13 ticks on the day at 101-27. Reprices for the worse are possible from lenders who were already out with rates before the ISM report, though some may give the range time to show it's support.

***ISM REPORT ON U.S. MANUFACTURING SHOWS PMI AT 60.8 IN JANUARY (CONSENSUS 58.0) VS 58.5 IN DEC *** PRICES PAID INDEX 81.5 IN JANUARY (CONSENSUS 73.5) VS 72.5 IN DEC *** MANUFACTURING EMPLOYMENT INDEX 61.7 IN JANUARY VS 58.9 IN DECEMBER

On Friday, we said: In thinking about the apparent cause of the stock sell-off and consequent flight to safety bond market rally, one thing we know about the market moving on civil unrest is that it is usually temporary in nature until/unless supported by normal market fundamentals. This phenomenon is almost perfectly complimented by the recent range, especially if the range is indeed consolidating (i.e. getting narrower). If that is the case, the support level for 10's today (and maybe tomorrow?) should be in the mid 3.45's. A bounce there would be another vote for the consolidating range. For now, 10's are up over 6bps on the day at 3.434. FNCL 4.5's are down 9 ticks at 101-31.

The risk trade is on for the 2nd consecutive session and interest rates are suffering because of it. Stocks improved around the world last night which led to further unwinding of "flight to safety" positions in U.S. Treasuries and pushed production MBS prices lower on the open. Benchmark 10year note yields are now seen in the high side of the recent range (3.43 to 3.50%) and FNCL 4.5 MBS prices are bid in the lower half of their recent range (102-10 to 101-28). Loan pricing will be worse this morning.

WASHINGTON, DC — Fannie Mae (FNMA/OTC) today reported its posted yields for January 28, 2011. All Fannie Mae yields are quoted on a net basis. Servicing fees are not included. 15 Year FRM: 3.75% vs. previous 3.74% vs. 4.07% one year ago. 30 Year FRM: 4.55% vs. previous 4.54% vs. 4.75 one year ago FHA/VA 30 Year FRM: 5.12% vs. previous 5.11% vs. 5.47% one year ago

WASHINGTON, D.C. — Fannie Mae (FNMA/OTC) today announced the introduction of Fannie Mae Guaranteed Multifamily Structures, or Fannie Mae GeMSTM, an expanded multifamily mortgage-backed securities (MBS) execution that will include DUS Megas, DUS REMICs and syndicated DUS Megas. Syndicated Mega deals will be managed by broker-dealers and offered in issuance sizes similar to DUS REMIC transactions. This expansion builds on Fannie Mae's successful DUS REMIC issuances, providing additional Fannie Mae GeMS products with similar features and liquidity. Fannie Mae's suite of multifamily MBS products helps to provide a continuous source of stable funding to support the nation's rental housing market. "Fannie Mae is a leading provider of capital and liquidity for affordable workforce rental housing, and our role is more important now than ever," said Kenneth J. Bacon, Executive Vice President, Multifamily Mortgage Business. "When many financial institutions pulled out of the multifamily financing market during the financial crisis, we stayed and increased our participation to help keep credit flowing." "The introduction of Fannie Mae GeMS syndicated Mega offerings supports our commitment to provide transparency, consistency and liquidity to multifamily investors in the fixed-income markets," said Kimberly H. Johnson, Vice President, Capital Markets.