In MBS OPEN I communicated some nervous feelings about the prospects for an extension to our recent rates market "relief rally". While the market was hesitant to move in either direction this morning following mixed messages from the labor department and Capitol Hill, both stock and bond chart patterns seemed to be aligning with our bearish economic outlook (stagnation). Unfortunately we still had anxieties regarding upcoming Treasury supply. After all, its still a trader's world and we're still stuck  in it.  This left us in a defensive posture. We didn't want to see short term floaters lose rebate on an overnight float...the principles of GUTFLOP resonate loudly in our ears at all times of a rally. There was a caveat though, the stock lever. This from the OPEN:

Not to confuse if you're debating lock or float....dont overlook the stock lever for support in  the bond market. Look for the S&P to find support between 1130 and 1135. If broken, bonds could catch a flight to safety bid and MBS prices would benefit. On another note, it would be funny, after 6 months trying to predict a slowdown in equity side optimism, that stocks would consider consolidation right after I say the S&P target is 1200. This is why I like to trade numbers not emotions..

Well...

Bonds didn't even get a chance to price in that auction concession,  the stock lever gave us a boost BEFORE the Treasury announced next week's auction terms.  Check it out...the S&P broke 1130 support after 10am Leading Indicators data (which was BETTER THAN EXPECTED and overlooked).

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The reaction in the bond market is obvious. As the S&P fell, TSYs benefited from a flight to safety bid. Thank the stock lever for these rate improvements..

"Rate sheet influential" MBS coupon prices are higher..and now in a REPRICE FOR THE BETTER ZONE.

The FN 4.0 is +0-09 at 98-04 yielding 4.18% and the FN 4.5 is +0-08 at 101-01 yielding 4.395%. The secondary market current coupon is 4.363%.

By the way, here is what the Treasury will auction next week. Unchanged from the previous issuance, these amounts were as expected.

Tuesday January 26th: $44 BN 2-YR NOTES

Wednesday January 27th: $42 BN 5-YR NOTES

Thursday January 28th: $32 BN 7-YR NOTES

President Obama is speaking right now. This is what flashed across my news reader:

OBAMA CALLS FOR "COMMON SENSE" REFORMS TO PROTECT TAXPAYERS FROM FUTURE FINANCIAL CRISES
11:40 21Jan10 -OBAMA SAYS MUST PREVENT FIRMS FROM TAKING ON RISKS THAT THREATEN THE ENTIRE FINANCIAL SYSTEM
11:40 21Jan10 -OBAMA SAYS U.S. TAXPAYERS MUST NOT BE HELD HOSTAGE BY "TOO BIG TO FAIL" BANKS
11:41 21Jan10 -OBAMA SAYS U.S. NO LONGER BANKS TO STRAY TOO FAR FROM MISSION OF SERVING DEPOSITORS
11:42 21Jan10 -OBAMA: BANKS BENEFITING FROM U.S. SAFETY NET SHOULD NOT BE ALLOWED TO TURN AROUND AND TRADE FOR PROFIT
11:42 21Jan10 -OBAMA: CANNOT ALLOW HEDGE FUNDS, PRIVATE EQUITY FIRMS TO PUT BANK DEPOSITOR FUNDS AT RISK
11:43 21Jan10 -OBAMA: BANKS WILL NO LONGER BE ALLOWED TO OWN, SPONSOR, INVEST IN HEDGE FUNDS FOR PROPRIETARY PROFIT
11:43 21Jan10 -OBAMA SAYS MUST PREVENT FURTHER CONSOLIDATION OF U.S. FINANCIAL INDUSTRY
11:44 21Jan10 -OBAMA SAYS READY TO HAVE FIGHT WITH FINANCIAL SECTOR, LOBBYISTS OVER PROPOSED RULES
11:45 21Jan10 RTRS-OBAMA: "WE SIMPLY CANNOT RETURN TO BUSINESS AS USUAL", MUST REIN IN EXCESS AND ABUSE THAT NEARLY BROUGHT DOWN FINANCIAL SYSTEM

I need to sort this out before commenting, however I can say BANK STOCKS do not like these reforms...but stocks are crapping the bed overall.

  If the FN 4.5 can hold gains over 101-00...you should see some reprices for the better.