It's a bit confusing that Monday's date will be 4/11 as it contains very little by the way of the proverbial "411" with no scheduled economic data. But that probably won't matter to most observers, who will be content to get caught up on how the budget drama is panning out. The data picks up on Tuesday and stays strong all week. Each of those 4 days contains at least one top tier release and is flanked by as many as 3 mid-tier releases, not to mention a normal amount of Fed-Speak. Then there's the fresh round of auction supply, which includes 3's, 10's, and 30's, consecutively beginning Tuesday. Some market watchers are looking for TSY's to dig in for some support at a benchmark 10yr yield of 3.60. Looks like today would fit as a potential first step there, and perhaps ongoing stock losses and a "less awful" auction cycle could help. NOTE: that's not a "prediction" by any means, just something to consider as being "at stake" in the week to come. We want you to have a good and relaxing weekend, so we'll discuss the downsides of what's at stake on Monday perhaps!

An update from HUD: We know many of you are anxious about where things currently stand with regards to HUD’s Fiscal Year 2011 budget. As we are sure you are well aware, the continuing resolution (CR) under which HUD – along with the rest of the Federal Government – is currently operating, is set to expire tonight. Should the government shut down, most of HUD’s functions would cease. Housing Counseling Agencies should be aware that: • HCS - The Housing Counseling System (HCS) will not be available. Consequently, counseling agencies will be unable to update agency profile information, submit activity data, or otherwise utilize the functionality in HCS.• Counseling Agency Search Functionality - The HUD.GOV website will be available in “Maintenance Mode” only. This means that HUD.GOV will be up but there will be no updates made to pages on the site. As a result, HUD’s website housing counseling search functionality, and similarly HUD’s toll free number to search for counseling services, will still be available to households seeking counseling services. However, with HCS down, the data behind the search functionality will not be updated. • Grant Funds – While the LOCCS system should be functioning, there will be no GTRs to approve requests for disbursements. Consequently, no grant disbursements will occur during a shut down. • Inquiries – Counseling agencies will not be able to reach HUD staff with inquiries. General inquiries about FHA programs can be directed to 1-800-CALL FHA (1-800-225-5342). However, this call center will have very limited information regarding the Housing Counseling Program and the issue covered in this message. We hope this is helpful for you to make any preparations that may be necessary in the event that a shutdown does occur. We look forward to an FY 2011 appropriation and the resumption of services as soon as possible.

While lower lock volume implies less business for loan originators, there is an upside in the production slowdown: Loan Pricing isn't deteriorating at the same pace as benchmark Treasury yields. Why? One answer has to do with Supply and Demand in the secondary market. Fewer new lock requests means less new MBS supply in the secondary mortgage market. Less new loan supply in the TBA MBS market (loan pipeline hedging) means less sellers are present. This is a favorable trading environment for all mortgage-backed securities market participants, which explains why MBS have generally outperformed their directional guidance givers (Treasuries) lately. For loan pricing watchers specifically, it lessens the pain of a prolonged bearish trend in benchmark yields.

FNCL 4.5's returned again to challenge levels that were only seen briefly earlier in the day. Instead of bouncing and heading right back down, this time, they've been content to hang out for a bit, prompting several lenders already to release reprices for the better.

FNCL 4.5's recently made it as high as 101-09 while 10yr yields also tested new lows around 3.57 before both retraced to the same levels that had previously been providing resistance. To be fair, MBS are half a tick higher now at 101-07 vs 101-06+, but 10's are at the same 3.583 level. Things are relatively sideways in a fairly tight range as stocks continue to move very minimally lower.

Stocks have fallen back to unchanged levels on the day and the bond market has finally begun making some microscopic progress. For benchmark 10's, this equates to the best yields of the day, but only slightly lower than previous resistance. Currently they're at 3.583. MBS are also at their best levels of the day but that's merely in line with the same price that has capped out further progress all morning, aka 101-06+ in FNCL 4.5's. That's 5 ticks down on the day, but given where prices came out this morning, it's getting close to being "good enough" for some luke-warm reprices for the better if these levels are either maintained for a few hours or if further progress is made.