The U.S. session gets underway with FNCL 4.5's down 3 ticks at 101-22, the 10yr note yield 1.65 bps higher at 3.455, and S&P futures bid up 3 pointsat 1305. These levels are well within yesterday's extremes as a slightly bullish set of data out of Europe is offset by fresh concerns about Japan's nuclear reactors on breaking news that radioactive water flooded a reactor tunnel.

There's no economic data occupying the 8:30am time slot, but we'll get Case-Shiller home prices at 9am to better inform what seems like the current talk of the town: the potential "double dip" in housing prices.  Traders this morning will also  get data on consumer confidence as well as more Fed speak and a $35 billion 5-year note auction.

As a reminder, we view the latest run up in rates as being driven by a technical reversal from overbought levels followed by an auction concession driven "bid wanted" atmosphere where rates were left to drift higher with little push back from bargain buyers . While we respect the technical pressures that have been created by the directional drift, we still view them as a tactical ploy and remain optimistic about a potential turnaround as the sell-off has generally lacked participation.  We are however operating from a defensive position as one day of high-volume selling could confirm a bearish technical shift and erase our optimistic gut feeling.

(Personally I am bored out of my mind by this bond market. We're going on seven straight days of slowness)

Key Events Today:

The debate over what counts as a "Qualified Residential Mortgage (QRM)" may be coming to an end in the near future.  The Federal Deposit Insurance Corporation (FDIC) has scheduled a meeting of its Board of Directors today to vote on the issue. A draft of the proposed rule will be made available to the public at that time. FULL STORY

9:00 - Too much housing inventory has been driving home prices down for the past six months, according to the S&P Case-Shiller Home Price Index. The most recent index, for December, showed prices in the 20 metropolitan areas measured falling 0.4% compared to the previous month, which left median prices 31% below their July 2006 peak. Median prices at the end of 2010 were 2.4% below the level at year-end 2009. 

Few economists have made predictions for the January figure, but those who have aren't predicting a rebound. Economists at Nomura believe January 2011 prices will be 3.2% lower than the January 2010 median. 

"In January 2011, one in every four existing home sales came from distressed properties, which were sold with an average price discount of 35%," said analysts at BBVA, citing data from RealtyTrac. 

"Looking forward, prices will tend to stabilize as the weight of auctioned homes falls and the importance of the structural factors in demand formation increases," they continued. "The increase in the number of households, the positive growth of family income and the low mortgage rates will all contribute to price stability."

Analysts at BMO predict a 0.4% fall in the month, leaving prices 2.4% down from last year.

"Demand will need to strengthen considerably to clear out the massive overhang of distressed properties, given that both the inventory of foreclosed properties and the rate of new foreclosures coming to market are running at four-times the norm, and home sales are nowhere near their normal levels," they wrote Tuesday.

10:00 - Can Consumer Confidence continue rising for a sixth consecutive month in the face of rising oil prices, high unemployment, and concerns about the economic impact of Japan's earthquake? The market doesn't think so, not by a long-shot. The consensus is for the Conference Board index to drop to 64 in March from 70.4 in the previous month - a three-year high. If a six-point drop sounds too pessimistic, consider that the range of estimates dips as low as 55.

"It's a bit tough to see why [this survey] hit three year highs in February," said forecasters at Janney Capital Markets. "Unemployment is at nearly 9%, home foreclosures just reached the highest level on record, and oil prices are spiking rapidly. ... Few things scare Americans like nuclear risk, and the worst reactor disaster since Chernobyl is bound to affect psyches, perhaps even more so than the aforementioned oil price issues," they added. 

There is, of course, some recent precedent for the pessimism. The survey's rival, published by the University of Michigan, declined to 68.2 in early March from 77.5, while one-year inflation expectations jumped to 4.6% from 3.4%.

12:45 - James Bullard, president of the St. Louis Fed, speaks on monetary policy to the 2011 European Banking and Financial Forum in Prague.

• Treasury Auctions:
• 11:30 - 4-Week Bills
• 11:30 - 5-Year Notes ($35 billion)