S&P's cut a range from 1296 to 1307 yesterday and are up to 1309.35 so far this morning. But that hasn't deterred 10yr TSYs from holding on to an extremely narrow range that lies mostly between 3.37 and 3.38. The ball is in the stock market's court as yesterday's S&P news is increasingly viewed as a net-positive for the bond market and presents inherent challenges for stocks. FNCL 4.5 MBS are currently still unchanged on the day at 101-05 and have been in a range between 102-04 and 102-06 for most of the morning. At this point, we're just waiting to see if anyone or anything makes a move.

WASHINGTON, April 19 (Reuters) - Lenders would be required to make sure prospective borrowers have the ability to repay their mortgages before giving them a loan, under a proposal released by the Federal Reserve on Tuesday. The rule would establish minimum underwriting standards for most mortgages. Lenders can protect themselves from any liability under the proposed rule, which is required by the new Dodd-Frank financial reform law, by meeting certain standards for a "qualified mortgage," such as verifying a borrowers income. The Fed is seeking comments on the proposal through July 22. The final rule will be implemented by the Consumer Financial Protection Bureau, which opens its doors on July 21. (Reporting by Dave Clarke; Editing by Neil Stempleman)

FNCL 4.5's are currently unchanged on the day at 102-05 while 10yr notes are .39 of a basis point lower at 3.378. We haven't seen much by the way of volume or volatility this morning and even the stock lever is relatively disconnected. Shaping up to be a fairly lackluster day, though now that we've said that, it's probably jinxed.

8:48 - U.S. TREASURY'S GEITHNER SAYS THINGS ARE BETTER THAN THEY HAVE BEEN IN TERMS OF PROSPECTS FOR U.S. FISCAL POSITION--CNBC 8:49 - GEITHNER SAYS DEMOCRATS, REPUBLICANS AGREE REFORMS ARE NEEDED TO ADDRESS DEFICITS 8:49 - GEITHNER SAYS DEMOCRATS, REPUBLICANS DISAGREE ON HOW TO REDUCE BUDGET DEFICITS 8:50 - GEITHNER SAYS OBAMA, CONGRESSIONAL LEADERSHIP RECOGNIZE NEED TO BRING U.S. BUDGET DEFICITS DOWN 8:50 - GEITHNER SAYS U.S. FISCAL CHALLENGES ARE DAUNTING, NEED TO START NOW TO ADDRESS DEFICITS 8:52 - GEITHNER SAYS PROSPECTS FOR A BIPARTISAN DEAL TO REDUCE BUDGET DEFICITS BETTER TODAY THAN THEY HAVE BEEN IN A LONG TIME 8:53 - GEITHNER SAYS MULTI-YEAR TARGETS NEEDED TO PUT BUDGET DEFICIT ON PATH THAT DECLINES OVER TIME 8:53 - GEITHNER SAYS U.S. IN MUCH STRONGER POSITION TO MANAGE ITS BUDGET CHALLENGES THAN OTHER MAJOR ECONOMIES

Despite a report showing an increase in housing starts, the first reaction for the bond market has been favorable. 10's had only made it as low as 3.387 before the report but fell to 3.376 shortly thereafter. FNCL 4.5's are down 1 tick on the day, but are up 5 ticks since they opened lower this morning, from 102-00 to 102-05 currently. This was the last and only economic data of the day so we anticipate some connection from the stock lever and ongoing possibility of reaction to headline news.

* US MARCH HOUSING STARTS +7.2 PCT VS FEB -18.5 PCT (PREV -22.5 PCT) * US MARCH HOUSING STARTS 549,000 UNIT RATE (CONSENSUS 520,000) VS FEB 512,000 (PREV 479,000) * US MARCH HOUSING PERMITS +11.2 PCT VS FEB -5.2 PCT * US MARCH HOUSING PERMITS 594,000 UNIT RATE (CONSENSUS 540,000) VS FEB 534,000 * US MARCH SINGLE-FAMILY STARTS +7.7 PCT TO 422,000 UNIT RATE; MULTIFAMILY +5.8 PCT TO 127,000 UNIT RATE * US MARCH HOUSING PERMITS 5 UNITS OR MORE AT 173,000, HIGHEST SINCE JAN 2009

While cash fled equities in the wake of Standard & Poor’s revising its outlook on U.S. debt to negative from stable yesterday, the Treasury market rallied to near-one month highs. The benchmark 10-year yield declined four basis points to 3.37% while the 30-year yield fell two basis points to 4.35% and the FNCL 4.5 MBS coupon went out 9/32 higher in price at 102-05. Treasury yields drifted progressively higher in active overnight trading. The benchmark 10-year note is currently -4/32 at 101-29 yielding 3.391% (+1.1bps) and the FNCL 4.5 is -2/32 at 102-03 yielding 4.139% according to MND's MBS yield model. Equities are roughly flat following a sharp sell-off Monday that pushed indexes more than 1% lower. S&P 500 futures are up 2 points at 1,303.00 as Dow futures trade 28 points higher at 12,168. Light crude oil futures are currently -0.63% at $106.44 and gold futures are +0.19% to $1,495.30. Gold prices traded around the $1,500 mark yesterday, a new record high. Guidance from world markets is mixed. Asian stocks are mostly lower with shares in Japan and Hong Kong falling 1.21% and 1.30%, respectively; the ongoing session in Europe is more positive with London shares rising 0.49% and German stock climbing 0.36%. Key earnings releases this morning include Goldman Sachs, Intel, and IBM. After the bell, results from Yahoo are expected too. While housing data hits the wires too, the focus is clearly on earnings.