S&P's have been recently unable to break through their highs of 1319 as oil came off it's lows. The index is currently at 1316.17. 10yr yields still haven't gone any higher than 3.53, but have been holding a tight range near those weak levels. FNCL 4.5's are down 2 ticks on the day at 101-24. Rate sheets are coming in now slightly weaker than yesterday and the next major data to look forward to comes in the form of the 3yr note auction at 1pm.

FNCL 4.5's moved down to 101-23 recently, but the broader bond market is not moving directionally weaker as 10's continue to hold under 3.53. Considering the early range for MBS was around 101-28, it's possible that the itchy-trigger-finger type lender is considering repricing for the worse IF they were out with rates before 9am Eastern.

The bond market continues to battle the weakness mentioned previously as being connected to oil movements. Support could be coming in around 3.53 in 10yr notes and around 101-24 in FNCL 4.5's. The recent move down in MBS prices is enough to expect a few rate sheets to be a bit later than normal as lenders adjust them slightly weaker.

While some people believe that markets are random, others make money by using rule-based trading systems that rely on certain patterns to identify favorable trading conditions. Traders, at every level, search for a tradable edge. Some find it in fundamental analysis; others find it in technical analysis or chart-based patterns; still others find an algorithmic or execution-based edge. So, is there some magic unifying equation that defines the Market? Personally, I doubt it. However, there is always "something" working in the markets. The challenge is to identify what that is and to ignore the rest. READ MORE.... Though many many patterns work, from time-to-time, when a particular pattern comes into play may seem random; and here is why. Understanding the Markets. 110129 CME SP500 Trading PitThere is no such thing as a "Market" ... It is really just a collection of separate traders. One of the reasons that markets experience great volatility is that different groups buy or sell for different reasons at different times. Consequently, even if one group trades using a consistent set of rules, a strategy that effectively combats it only works until that group stops trading those rules.

The markets are like a set of interconnected gears and cogs at the moment with one central cog noticeably driving the rest: oil. The stock market is the most immediately connected cog in the machine and simply due to all the recent talk about the stock lever, oil's ultimate impact on bonds can be assumed. So it's not necessarily that the shape of trading in bonds is going to exactly match oil, but through a few degrees of separation of various size cogs, OIL is the central cog that's driving the rest of the machine, even if the bond cog moves in a slightly different way. This trickle down effect is pushing yields higher at the moment as oil prices recently spiked. Bonds followed shortly thereafter and 10yr yields have pushed up to 3.523. FNCL 4.5's are now at 101-26, unchanged on the day, and on the very edge of the positive trendline mentioned yesterday as connecting a series of recent lows. In that sense, it would be convenient for the development of that trend were we to hold 101-26 for now. If we don't, it could be the earliest of early indicators of potential reprice risk for lenders who are already out with pricing.

FNCL 4.5's are 2 ticks higher so far this morning at 101-28. 10yr notes are nearly 2 bps lower than 5pm levels at 3.4973. Stock futures are slightly higher on news that OPEC is considering production hikes, a move that is assumed to bring oil prices down. So the bond market is performing well despite a highly correlative stock lever yesterday. There's no major econ data this morning and the 1pm auction of 3yr treasury notes is the bond market's focus of the day for now.

The Index of Small Business Optimism gained 0.4 points in February, rising to 94.5, not the hoped-for surge that would signal a shift into “second gear” for economic growth. Gross Domestic Product (GDP) growth in the fourth quarter was revised lower due to a large fall off in inventory building and weaker consumer spending than initially estimated. “Weak sales” still get the most votes by owners as their top business problem. Seven Index components advanced or were unchanged and three fell, but all of the changes, positive or negative, were small. Most notably, hiring and future plans to hire were solid and hopefully presage a string of steady job creation months this year. While historically weak, these relative gains signal good news for a sector still deeply encumbered by weak sales. Still, only a net 9% of small business owners surveyed expect that business conditions will improve over the next six months. “This is not a reading that characterizes a strongly rebounding economy,” said NFIB chief economist Bill Dunkelberg. “But it is the third best reading since the fourth quarter of 2009 when the economy was expanding rapidly. So, it gives us cause for some real optimism. Apparently the future is looking brighter for a few more small-business owners, although much will depend on what Congress does this year.

(Reuters) - A Libyan foreign ministry official on Tuesday denied Tripoli had floated a proposal under which leader Muammar Gaddafi could step down in exchange for guarantees about his future. The official, an advisor to the deputy foreign minister, said reports about such a deal were "absolute nonsense." Gaddafi's opponents in rebel-held east Libya said they received a proposal to discuss Gaddafi's exit but rejected it. (Reporting by Michael Georgy)

(Reuters) - OPEC oil producers are consulting about a supply boost but many in the group remain skeptical, saying high prices are due to fears of shortage and world supply is comfortable despite the loss of Libyan crude. "We are in consultations about a potential output increase, but have not yet decided," Kuwait's Oil Minister Sheikh Ahmad al-Abdullah Al-Sabah told reporters on Tuesday. OPEC oil ministers have said there was no plan to meet ahead of the group's next scheduled gathering in June. Iran holds the OPEC presidency, a coordinating role rotated annually. Its OPEC governor Mohammad Ali Khatibi downplayed speculation of more OPEC oil. "There is no shortage in the market," he told Reuters. "There is no need for further OPEC supply. But the consumers are worried, this is psychological."