If anything, the bond market is a bit stronger after the 3pm close with 10's down to 3.3564. MBS FNCL 4.5's are at 102-10. Reprices for the better are still possible.

What had been a brick-like wall at 3.37 has collapsed in recent minutes and the late day action in 10yr benchmarks makes the post-sell-off trade look like a trend channel rather than a horizontal pivot. Scattered reprices for the better are being seen from lenders that priced conservatively or "took it away" aggressively. Additional reprices for the better could be slightly more likely if current levels or higher are held.

10's are drifting sideways right on the 3.37+ pivot as 10 minute volume totals in futures are staying mostly under 10k (versus an average of 45k earlier in the day. This is keeping FNCL 4.5's under 102-10, a level they'd need to break by a bit to see reprices for the better.

This could be good or could be frustrating for bonds depending on where the 10yr goes next. A previous update discussed the pivot point from this AM at 3.374. 10yr yields are back again for a 2nd test after the first failed test bumped yields back up close to 3.34. Either way, both MBS and treasuries have made moderate gains in the last 15 minutes, relieving any building concerns about an impending break to even weaker levels today.

(Reuters) - Electronic trading platform Tradeweb said on Tuesday that talk of a large erroneous trade of U.S. government securities on its system that sparked a sudden market sell-off is wrong. U.S. government bond prices dropped suddenly in early trading, which led to speculation of an erroneous trade on the Tradeweb system. "Reports of a multibillion dollar customer trade error on Tradeweb this morning are completely false. Indeed, Tradeweb has a number of safeguards and warnings incorporated into its electronic markets to prevent 'fat-finger' errors of this type," the company said in a statement.

FNCL 4.5's are ticking between 102-06 and 102-07; the lowest they've been since 11:30am. Benchmark 10yr notes are managing to hold a bit lower than their highest yields today which is at least somewhat of a promising sign for MBS holding their lows, or close to them.

(Dow Jones)--Deutsche Bundesbank President Axel Weber Friday warned that inflation in the euro zone may not be as short-lived as currently assumed, and also stressed that banks should be allowed to fail as taxpayers won't agree to bail them out a second time. Weber, a member of the European Central Bank's governing council, told a university audience that "risks to the medium-term outlook for inflation, which are so far still broadly balanced, could well move to the upside." As reported, consumer inflation in the euro zone rose to 2.2% on the year in December. ECB President Jean-Claude Trichet said at his monthly press conference Thursday that the development was largely due to volatility in energy prices and likely to be short-lived, a message that Weber repeated Friday, albeit with an element of skepticism. He said that the assumption of a moderation in price pressures is as yet only an assumption.

10yr benchmarks originally backed up to 3.374 this morning and corrected nearly to 3.34. After their second move up to nearly 3.41, yields once again corrected lower, but have recently bounced on the morning pivot point at 3.374. This resulted in yields making another run up to near the highs, but so far, they are stopping a bit short of that.

(Dow Jones)--U.S. Treasury Secretary Timothy Geithner and U.S. Housing and Urban Development Secretary Shaun Donovan said Tuesday they support an effort to create new compensation for mortgage servicers, calling the current system "broken." Those companies, which collect mortgage payments and distribute them to investors, have been battered by paperwork errors and widespread consumer complaints. As a result, the Federal Housing Finance Agency said it directed Fannie Mae (FNMA) and Freddie Mac (FMCC) to work on an initiative to develop the payment system with the Department of Housing and Urban Development.

Builder confidence in the market for newly built, single-family homes held unchanged at a relatively low level of 16 for a third consecutive month in January, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. While the HMI components gauging current sales conditions and sales expectations for the next six months both held steady from the previous month, at 16 and 25, respectively, the component gauging traffic of prospective buyers edged up a single point to 12 in January. HMI scores rose by one point in the Midwest and four points in the West in January, to 14 and 15, respectively. Meanwhile, HMI scores fell two points in the Northeast and one point in the South, to 20 and 17, respectively.

After failing to confirm a breakout from the recent range, benchmark 10-year yields have spiked higher in an aggressive manner. This illustrates the release of stored energy as 10s have shot 13bps higher from opening levels in a matter of minutes which has pushed MBS prices sharply lower. If your lender was quick to price, you may see reprices for the worse. If you lender has not priced, you may see delayed releases of rate sheets.

"The range is the range, until it's not." Otherwise known as "play the range until the range plays you." No matter how you view the causality or implications of this morning's sharp spike weaker in bonds, we'd highly encourage anyone viewing this morning negatively to pull up the 1 month 10yr chart, and see the range that has been in play since mid December.

(Dow Jones)-- Overall, foreigners were net buyers of long-term U.S. financial assets in November, according to the monthly Treasury International Capital report, known as TIC. Among all foreign investors, net purchases of U.S. Treasury notes and bonds totaled $61.7 billion, compared with net buying of $24.7 billion in October. Private foreign investors bought a net in $51.5 billion Treasury notes and bonds, after buying a net of $25.9 billion the previous month. The closely watched figure of net long-term securities transactions showed total buying of $85.1 billion in November, after purchases of $28.9 billion the month before. China's holdings fell $11.2 billion to $895.6 billion, following net buying of more than $23 billion in October, its largest position in nearly a year. The data follows a rise in the value of China's foreign-exchange reserves by $199.3 billion in the fourth quarter, bringing total reserves at the end of 2010 to $2.85 trillion. Meanwhile, Japan continued to be a net buyer of Treasurys, notching another high level in November and continuing to threaten to overtake China as the top foreign holder. Japan remained the second-largest holder of Treasurys, lifting its holdings to $877.2 billion from $875.0 billion in October.

In recent minutes, bond prices have declined nearly to Friday's worst levels. This has 10yr notes inching over 3.33 and MBS FNCL 4.5's down to 102-18. If you have access to a lender who is already out with rates this morning (rare), there could even be potential for reprices for the worse.

10yr notes started the domestic session in the 3.28 range but moved to test 3.30 following Empire State Survey data at 830am. FNCL 4.5's also began the day stronger, but lost a few ticks at 830, no down to 102-21. Both of these are well within Friday's range and so far, no decidedly directional tone has been set for the day.

RTRS-CITI CFO GERSPACH: WE'RE MOVING FORWARD WITH GSE MORTGAGE REPURCHASE CLAIMS. THINKS THEY'VE GOT ADEQUATE COVERAGE FOR MORTGAGE REPURCHASE EXPOSURE

The Federal Housing Finance Agency (FHFA) has directed Fannie Mae and Freddie Mac to work on a joint initiative, in coordination with FHFA and the Department of Housing and Urban Development (HUD), to consider alternatives for future mortgage servicing structures and servicing compensation for their single-family mortgage loans. Currently, a servicer’s compensation is generally based on a minimum servicing fee that is part of the mortgage rate, which decreases the flexibility necessary for optimal servicing of non-performing loans from both the borrowers’ and guarantors’ perspectives. The current servicing compensation structure also results in the creation of a mortgage servicing right asset, which is difficult to manage and separate from a servicer’s core competency of servicing mortgage loans...

NY FED'S EMPIRE STATE INDEX +11.92 IN JAN (CONSENSUS +13.00) VS REVISED +9.89 IN DECEMBER // NY FED'S EMPIRE STATE EMPLOYMENT INDEX AT +8.42 IN JAN VS -3.41 IN DECEMBER // NY FED'S EMPIRE STATE NEW ORDERS INDEX +12.39 IN JAN VS REVISED +2.03 IN DECEMBER // NY FED'S EMPIRE STATE PRICES PAID INDEX +35.79 IN JAN VS +28.41 IN DECEMBER // NY FED'S EMPIRE STATE SIX-MONTH BUSINESS CONDITIONS INDEX +58.95 IN JAN VS +48.86 IN DECEMBER

Stored Energy: The Sideways Freight Train is Running Out of Room: http://www.mortgagenewsdaily.com/mortgage_rates/blog/194422.aspx Mortgage Rates: Varying Degrees of Opportunity Presented: http://www.mortgagenewsdaily.com/consumer_rates/194425.aspx

Bond vigilantes should soon attack this approach... (Reuters) - European finance ministers agreed on Tuesday to take their time over beefing up the euro zone's rescue fund and to publish new stress tests on the region's shaky banks in the second half of the year. The go-slow approach could test the patience of investors, spooked by the euro zone debt crisis, who sold off peripheral countries' bonds this month until the European Central Bank intervened to steady markets. Going beyond last July's flawed exercise, which failed to expose Irish banks' frailty, EU ministers agreed to include targets on liquidity in new, tougher tests of banks' ability to withstand financial shocks to be conducted by the end of May, with results in the third quarter, EU presidency sources said. "The message is that the tests have to be much more stringent and credible," one source said

(Reuters) - Chinese President Hu Jintao on Tuesday flew to the United States for a state visit buffeted before he even lands by senior U.S. senators demanding tough action against China for "manipulating" its currency. Hu said earlier this week he would not accept U.S. arguments the yuan was undervalued. The latest sparring over the currency underlines tensions over trade that will likely dominate Wednesday's summit in Washington between Hu and U.S. President Barack Obama. Their talks are expected to focus on a host of other thorny issues, from rebalancing the global economy to dealing with North Korea. Analysts are calling the visit the most important by a Chinese leader in 30 years given China's growing military and diplomatic influence and its emergence as the world's second largest economy after the United States.

Reuters) - Citigroup Inc posted a $1.3 billion quarterly profit on Tuesday, as the third-largest U.S. bank rounded off a year of recovery from the financial crisis. The company reported a net profit of 4 cents per share for the fourth quarter, compared with a year-earlier loss of $7.6 billion, or 33 cents per share.

(Reuters) - President Barack Obama said on Tuesday he would order a government-wide review of regulations with the goal of eliminating those that hurt job creation and make the U.S. economy less competitive. In an op-ed piece in The Wall Street Journal, Obama said some government regulations have placed "unreasonable burdens on business -- burdens that have stifled innovation and have had a chilling effect on growth and jobs.