If you expand to the 5 day chart in 10yr Treasuries, you may be able to see how the recent highs and lows form a triangle (the lines that mark the outermost levels on the high and low side converge right around this afternoon). From a technical perspective, that could mean today was a "gimme," being a Monday with limited data; a "second Friday" if you will, to recover from a brutal few weeks. It could also mean the market is looking toward tomorrow's European events (particularly a meeting between Sarkozy and Merkel). That is probably the highlight of tomorrow with the ironic supporting players being our own domestic economic data. There's Housing Starts and Import Prices both reporting at 830am, and then Industrial Production at 9:15am, all at least moderately significant pieces of economic data. As always, the link below includes the consensus estimates and more...

See consolidation in benchmark Treasuries below. We call this "storing energy" or "coiling". This pattern indicates the market is waiting for new guidance  (building up energy for a larger directional move). 2.35 is a major support pivot....

There's consolidation in MBS too. 103-26 is a major support pivot....

In the Reuters link below, Lockart says the Fed could buy longer-dated Treasuries. But "Lockhart said he was leery of embarking on additional bond purchases, barring renewed deflation risks or a spike in unemployment. But he indicated he was open to the notion of extending the maturities of the Fed's balance sheet by reinvesting proceeds of maturing bonds or even selling short-dated securities." But Markets seem to not be able to care any less about such things with no discernible reaction to that, or really to much of anything today. It's been one colossal, technical, stock-lever driven range-trade. Sadly, it's been primarily focused on pushing the weaker boundaries of that range trade as far as MBS and Treasuries are concerned, a fact that continues to generate reprices for the worse. Fannie 4.0's are at their lowest boundary of the day at 104-01 and 10yr notes are near their weakest levels of the day at 2.292.

(Reuters) - The risk of a new U.S. recession has risen over the last couple of months, but an outright contraction will most likely be avoided, Atlanta Federal Reserve Bank President Dennis Lockhart said on Monday. Lockhart said there is plenty the central bank could do if the economy does deteriorate further, including ramping up asset purchases or shifting their composition. Recent market volatility, driven in part by concerns of slowing economies both in the United States and Europe, threatens consumer confidence and could put a crimp on spending, Lockhart told a Rotary Club meeting. "The events of the last several weeks are a reminder that circumstances can quickly arise that may call for additional monetary stimulus," Lockhart said. Last week, the Fed took the unprecedented step of promising to keep interest rates near zero for at least another two years. Lockhart said in his view, the pledge hinged on economic conditions, and could be altered as the economic winds shift. Even though the Fed had only made a verbal promise about rates themselves, its balance sheet policy "should align with explicit rates policy," he said. Delving into the reasons for "wild" recent swings in global financial markets, Lockhart said the ups-and-downs were in part a reaction to the downgrade of the U.S. AAA credit rating. He said worries about Europe have also been at the forefront, with investors fearing France's ratings could be next on the chopping bloc. "There have been escalating concerns about the condition of specific banks in Europe that have high exposure to Italy and other peripheral countries," Lockhart said. Still, he was relatively sanguine about the U.S. financial system. "There is no lack of liquidity in the banking system. There has been, however, some stress in the money market mutual fund world, mostly before the debt ceiling was raised," Lockhart said. "We have not seen a renewal of solvency concerns here in the United States."

(Reuters) - U.S. banks continue to ease lending standards and most terms on all major non-real estate loans during the past three months, the Federal Reserve reported in its quarterly survey of senior loan officers. Some respondents also saw an increase in demand for commercial and industrial and commercial real estate loans over the same period, the Fed said. "At the same time, banks reportedly experienced, on net, slightly weaker demand for some categories of residential real estate loans," the Fed said. (Reporting by Doug Palmer; editing by Neil Stempleman)

We've been here before--several times today in fact... MBS are in line with their lowest levels of the day, currently down 4 ticks at 104-04. 10yr notes are at their high yields as well: 2 bps higher at 2.28. Making mention of this now (as opposed to waiting for lows to get lower) is mostly a matter of protocol. A move from the highs of the day to the lows of the day is probably something we're always going to let you know about. But although in many cases, that connotes a risk of reprices for the worse, those risks are more muted under current conditions. Reason: the short term range trade. Things have been sideways for two days now and this could ultimately look like just another bounce on one end of that broader sideways range. Even so, it's a good time to pay attention as these range boundaries act as a trigger of sorts. In other words, if 10yr yields break into 2.29's and more importantly, if MBS fall under 104-03 for more than just a few moments, risks of reprices for the worse will be higher.

(Reuters) - More U.S. homeowners prefer to pay off their mortgages sooner as interest rates have stayed near rock-bottom and weak labor conditions have caused them to reduce their debt loads, a survey showed on Monday. The current trend in refinancing into shorter-loan terms is a stark contrast to the one during the height of the housing boom, when families were taking out bigger mortgages against the rising values of their homes. Of those homeowners who refinanced a 30-year fixed-rate mortgage during the second quarter, 37 percent moved into a 15-year or 20-year fixed-rate loan. This is the highest since the third quarter of 2003, mortgage finance agency Freddie Mac said. In the second quarter, interest on the 30-year mortgage averaged 4.65 percent, compared with a 3.84 percent average on 15-year mortgages, the company said. "It's no wonder we continue to see strong refinance activity into fixed-rate loans," Freddie Mac Chief Economist Frank Nothaft said in a statement. Refinancing has comprised the bulk of U.S. mortgage activity since the housing bust that led to the 2007-2009 global financial crisis. During the second quarter, the refinance share of mortgage applications, versus the share of applications for loans to buy a home, averaged 70 percent, Freddie Mac said. (Reporting by Richard Leong; Editing by Dan Grebler)

Nothing to report really. Trading ranges from Friday mid-morning on continue to mark the boundaries for today's moves in MBS and Treasuries. Although we had a shot at breaking into lower yields if the S&P fell below it's important 1188 technical level, it bounced higher and now sits at 1196. 10yr Notes seem to not be capable of caring any less. At 2.255 they're right about mid range and the sideways trend of the past 2 days (Friday and today) is obvious. Same thing in MBS were 104-12 and 104-03 have been the extremes with one brief exception since 10am Friday. "Wait and See" mode. Looking at stocks, as well as the remaining economic data of the week and a Merkel/Sarkozy meeting tomorrow. Fannie 4.-'s are currently tick down on the day at 104-08.

It would have been relatively impossible to miss the fast pace and volatile swings in MBS over the past two weeks. That's what makes Friday and Today stand out; they're exceptions to that recent rule. 10yr Notes have 2 prominent highs and 2 prominent lows so far today, both of them are at the same levels. Both of them are slightly inside their Friday counterparts (i.e. narrowing trading range). Similar story for MBS: 2 highs today, both at 104-10, both just inside Friday's 104-12 highs. The lows are a bit less consistent, but have still occurred inside Friday's lows. The 104-01 to 104-03 area looks like a technical inflection point of sorts. Technicals are one thing today, but stocks will likely trump organic technical suggestions in bonds. With stocks falling now, we SHOULD see the upper end of the range break (in a good way for MBS) IF stocks approach/break 1188. MBS prices appreciably over 104-10 or under 104-03 would be reprice risk indications for the better and worse respectively. 4.0's are currently at 104-10, suggesting previous risks of negative reprices are null.