10 minute totals in treasury futures shortly after 10am rose to surpass yesterdays highest readings, indicating volume is returning to the market and pushing yields back up to their weaker levels that followed Friday's NFP rally. MBS, however, continue to hold at 102-26 diminishing risks of reprice for the worse.

(WSJ) Charles Plosser, president of the Federal Reserve Bank of Philadelphia, suggested that he wasn't prepared to mount a strong opposition to the Fed's controversial bond-buying program, even though he wasn't supportive of the policy. "I wish we hadn't done it but that doesn't mean I want to stop it right now," Plosser said in an interview with the Wall Street Journal before a speech today in Philadelphia.

U.S. NOV WHOLESALE SALES +1.9 PCT (CONSENSUS +1.5 PCT) VS OCT +2.6 PCT (PREV +2.2 PCT). sales, however, were up 1.9% versus a 1.5% consensus, though still down from October's +2.6% mark. Stock/Sales ratio is down slightly from 1.17 to 1.15 months. The headline decline i s the first since 12/2009, but it's possible that the market discounts this potential weakness due to an overbuilding of inventories that is now leveling off. The fact that sales were at their highest point since 9/2008 supports this. (Source: Reuters)

For lenders who priced early, the first risks of reprices for the worse are developing. 10yr notes are up sharply in yield to 3.34 following the stock market open and 7am data. 4.5 MBS are down to 102-26. In and of itself, this is not justification for reprices, but with the rapidity of the recent benchmark move and with auctions looming, there is an element of risk in the market even at this early hour. If 4.5's hit 102-22 those risks will pick up, and reprices would be all but guaranteed if we hit 102-17/19 by some chance. On the upside, reprices for the better are likely to be more dependent on auction results and should require 4.5 prices over 103-00.

(Reuters) - It is unlikely that the U.S. Federal Reserve's current $600 billion bond-buying plan played a roll in recent upticks in the "real economy," Philadelphia Fed President Charles Plosser said on Tuesday morning. He added that the second round of "quantitative easing" purchases, known as QE2, may have had an effect on the financial markets, since they began in November. But it "stretches things," he said, to argue it has affected recent unemployment numbers and data on sales and spending.

S&P shot up to 1276 at the open, but has moderated somewhat in the last 30 seconds. Now will be the time to watch 10's to see if they too moderate as it's not a given that the stock lever will be highly correlative all morning. Treasuries may have to discount themselves a bit for a pre-auction concession, but whether or not that could take 10's out of yesterday's range is a bit dubious considering they're not up to bat today. Current yield is 3.310, MBS 4.5's are off their highs of 102-30 in thin trading, now back at 102-28.

Bonds drifted into stronger and stronger territory yesterday afternoon, but did so in progressively lower volume. The volume was so low enough that if yields were weighted according to volume, the 3.30 to 3.33 range was maintained all day. This morning, treasuries came out of the gate with a 3.31 yield and have since moved into the 3.30's. That's fine territory considering anything other than a sell-a-thon is more confirmation that Friday wasn't a knee-jerk reaction. MBS 4.5's are at 102-28, but have not traded much since due to the impending settlement.

ALERT: Class A MBS, which consist of Fannie and Freddie 30-year coupons, will begin the settlement process today. That means prices will seem to drop this afternoon. However this is generally a non-event for loan originators as the roll is already accounted for in loan pricing as lock desks have been building rate sheets based on February coupons for several weeks now. READ MORE: http://www.mortgagenewsdaily.com/mortgage_rates/blog/187633.aspx

LISBON (Reuters) - Portugal has no plans to seek a bailout from the EU and IMF, and the government is doing everything possible to avoid doing so, Finance Minister Fernando Teixeira dos Santos said. Portugal is widely seen by economists as the country that is most likely to follow Greece and Ireland in seeking outside help with its finances to take it out of the firing line of the widening euro zone debt crisis. FULL STORY: http://www.reuters.com/article/idUSLDE70A0IP20110111

TOKYO (Reuters) - Japan will purchase euro zone bonds to bolster confidence in the European Financial Stability Facility as the euro zone struggles with a prolonged debt crisis, Japan's finance minister said on Tuesday, boosting the euro. FULL STORY: http://www.reuters.com/article/idUSTOE70A03620110111

The International Council of Shopping Centers and Goldman Sachs Retail Chain Store Sales Index slid 3.2% in the week ended Saturday from the week before on a seasonally adjusted, comparable-store basis, ending four consecutive weeks of growth. "Although sales fell sharply during this past week, the week-over-week decline probably was exaggerated by the seasonal adjustment given a low volume week," ICSC Chief Economist Michael Niemira said. "More importantly for January, retailers should see some improvements over the next few weeks as consumers redeem their gift cards throughout the month." On a year-on-year basis, the reading rose 3.5%, relatively steady from the prior week. For January, ICSC expects overall chain store sales will increase by around 2.5%, and there is expected to be less gift card redemption this year compared with last.

More from the Release.."Thirteen (13) percent (seasonally adjusted) reported unfilled job openings, a four point improvement that anticipates a reduction in the unemployment rate in the coming months. Over the next three months, 10 percent plan to increase employment (up one point), and nine percent plan to reduce it (down three points), yielding a seasonally adjusted net six percent of owners planning to create new jobs, a two point gain from December and the best reading in 27 months. Until sales picks up, there is no pressing reason to hire. The reduction in the payroll tax will add some impetus to hiring as most of that addition to take home pay will likely be spent. http://www.nfib.com/Portals/0/PDF/sbet/sbet201101.pdf

From the Release..."The Index of Small Business Optimism lost 0.6 points in December, dropping to 92.6, not a huge change but not the hope-for rebound that would signify more growth in the small business sector. Apparently, the “management change”in Washington and marginally better retail sales numbers were not enough to pump up spirits at the New Year celebrations. This marks the 36thmonth of recessionary levels. Only once in that period did the Index get above 93 (last month) and has been below 90 for 26 months." http://www.nfib.com/Portals/0/PDF/sbet/sbet201101.pdf