FNCL 4.5's are now down to the key pivot point at 101-20, which is 4 ticks lower day over day. Although technicals and our connectedness to benchmarks which have not yet seen their lows today would indicate a bounce, just be aware that if we move UNDER 101-20, reprice risk will have risen. Until then, we're just sideways into the auction until further notice.

Stocks had already put in a supportive bounce before the release of the Consumer Confidence data. The stock lever stayed strongly connected during that time and 10yr yields bounced just under 3.43. Following confidence data, stocks shot fairly quickly back into the green with the S&P at 1310.68 currently. 10's didn't follow the same pace, but are still up to 3.446, about mid-range for them. FNCL 4.5's are down 2 ticks from their 101-24 highs, now at 101-22, and are the "most sideways" of the three.

*** FDIC BOARD SET TO VOTE ON RISK RETENTION PROPOSAL TUESDAY MORNING *** DODD-FRANK LAW REQUIRES SECURITIZERS TO RETAIN 5 PERCENT OF CREDIT RISK OF SECURITIZED LOANS *** U.S. REGULATORY STAFF RECOMMENDS RISK CAN BE RETAINED IN VERTICAL OR HORIZONTAL SLICE OR A COMBINATION OF BOTH *** REGULATORY STAFF RECOMMENDS LOANS FOR HOME PURCHASES CAN BE EXEMPT FROM RISK RULE IF THERE IS 20 PCT DOWN PAYMENT *** BORROWER HOUSING COSTS CANNOT EXCEED 28 PCT OF GROSS INCOME ON MORTGAGES EXEMPT FROM RISK RULE-STAFF RECOMMENDATION *** MORTGAGES PURCHASED BY FANNIE MAE, FREDDIE MAC WOULD BE EXEMPT FROM RISK RETENTION REQUIREMENTS-STAFF *** HOW LOANS PURCHASED BY FANNIE, FREDDIE ARE TREATED WILL BE REVISITED WHEN THEY ARE NO LONGER CONTROLLED BY GOVT-STAFF *** AUTO, COMMERCIAL, COMMERCIAL REAL ESTATE LOANS EXEMPT FROM RISK REQUIREMENT IF THEY MEET CERTAIN UNDERWRITING STANDARDS-STAFF *** FDIC BOARD ALSO SET TO CONSIDER LIVING WILL RULE THAT IS PART OF NEW LIQUIDATION AUTHORITY

*** MARCH CONSUMER CONFIDENCE INDEX 63.4 VS FEBRUARY REVISED 72.0 (PREVIOUS 70.4) - CONFERENCE BOARD *** CONSUMER CONFIDENCE INDEX MEDIAN FORECAST FROM REUTERS FOR MARCH WAS 65.0 *** CONSUMER PRESENT SITUATION INDEX IN MARCH 36.9 VS FEBRUARY REVISED 33.8 (PREVIOUS 33.4) *** CONSUMER EXPECTATIONS INDEX 81.1 IN MARCH VS FEBRUARY REVISED 97.5 (PREVIOUS 95.1) - CONFERENCE BOARD *** JOBS HARD-TO-GET INDEX 44.6 IN MARCH VS FEB REVISED 44.4 (PREVIOUS 45.7) - CONFERENCE BOARD *** 1-YEAR CONSUMER INFLATION RATE EXPECTATIONS 6.7 PCT IN MARCH VS FEB 5.6 PCT (PREVIOUS 5.6)

*** S&P LWRS PORTUGAL TO BBB-/A-3;OTLK NEG;TELCON TODAY, 4.30PMBST *** S&P CUTS SOVEREIGN CREDIT RATINGS OF PORTUGAL TO 'BBB-/A-3' FROM 'BBB/A-2'. *** S&P SAYS REMOVES PORTUGAL'S RATINGS FROM CREDITWATCH NEGATIVE *** S&P CUTS GREECE'S RATING TO TO 'BB-' FROM 'BB+' *** S&P SAYS MAY FURTHER CUT GREECE'S 'BB-' RATING *** S&P SAYS COULD CUT GREECE'S RATING BY ANOTHER ONE OR TWO NOTCHES IF FISCAL POSITION WORSENS

With an auction on the horizon today, and the potential concessionary selling that may or may not precede it, we don't know if this will continue to be the case all morning, but for now, the stock lever is intact and helping... S&P's are nearly 3 pts down at the open, and in that same time, 10yr yields have fallen 3.464 to 3.442. MBS have responded favorably as well with FNCL 4.5's moving from their lows of the morning at 101-21 up 2 ticks to 101-23. One might assume that continued stock losses are a net positive for bond prices, but if stocks REALLY plummet for some reason, bonds might disconnect with the 1pm auction in mind.

Banks will be forced to retain some risk when they securitize all but the most conservative mortgages under rules that regulators are expected to vote on Tuesday. But the banks are likely to be given wide leeway in determining what risks to keep. Major banks, hoping to revive the mortgage securitization market that crumbled when many securitizations proved to be anything but safe, had asked regulators to define almost any mortgage — except for the most extreme types no longer being written anyway — as a “qualified residential mortgage.” But a summary of the proposal, provided to The New York Times on Monday night by a person briefed on the decision, showed that the regulators rejected that advice and decided that only the most conservative mortgages would qualify. Securitizations of any other mortgages would require the banks to retain “skin in the game” of at least 5 percent of the risk. FULL STORY: http://www.nytimes.com/2011/03/29/business/29bank.html

*** JAN HOME PRICES IN 20 METRO AREAS -0.2 PCT SEASONALLY ADJ (CONSENSUS -0.4 PCT) VS -0.4 IN DEC -- S&P/CASE-SHILLER *** JANUARY 20-METRO AREA HOME PRICES -1.0 PCT (CONSENSUS -1.0) VS -1.0 PCT IN DEC--S&P/CASE-SHILLER *** JANUARY 20-METRO AREA HOME PRICES -3.1 PCT (CONSENSUS -3.2 PCT) FROM YEAR AGO -- CASE-SHILLER *** JANUARY HOME PRICES IN 10 METRO AREAS -0.2 PCT SEASONALLY ADJUSTED VS DECEMBER -- CASE-SHILLER *** HOME PRICES IN 10 METRO AREAS -0.9 PCT IN JANUARY VS -0.9 PCT IN DECEMBER -- S&P/CASE-SHILLER *** JANUARY HOME PRICES IN 10 METROPOLITAN AREAS -2.0 PCT FROM YEAR AGO -- S&P/CASE-SHILLER

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.

FNCL 4.5's are down 3 ticks at the moment at 101-22 and 10yr notes are 1.65 bps higher at 3.455. Both 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.