Both MBS and TSY's came under a bit of pressure just now as stocks showed ongoing signs of rallying into their close. 10yr notes shot up over 3.58 briefly, but have since moderated to 3.577. FNCL 4.5's fell from 101-12 to 101-12, not enough for a reprice for the worse, and still in the middle of their range today. If 10's were to shoot back above 3.58 and this general weakness were to accelerate for any reason (even for "no reason"), we might see a lender or two recall their sheets with minimal adjustments for the worse. We'll let you know if that becomes a likelihood.

MBS and TSY's are in the vicinity of their best levels of the day as stocks are tanking in their final hour of trading. S&P's are down to 1322 at the moment, but bonds haven't followed especially well as the pace gets steeper. 10yr notes still refuse to even re-approach 3.56 in 10yr notes, currently at 3.57. FNCL 4.5's are up 4 ticks on the day at 101-11, a level that still leaves the possibility open for reprices for the better without making them universally likely.

Over the past hour, stocks have made a measured attempt to put in a supportive bounce. With a fairly connected stock lever, bonds have taken notice, mimicking the reversal as 10yr yields bounced hard off the 3.56 target and are currently back up to 3.57. FNCL 4.5's got as high as 101-14 but have also moderated to 101-12 at the moment. This is still higher than any of the previous highs of the morning, and lenders may still be considering reprices for the better, but any extensive rally in MBS and TSY's relies on the 10yr note breaking through that 3.56 target, something it looks reluctant to do for now.

Although MBS have backed off a bit in terms of outperforming Treasuries, both have gained enough to reach the best levels of the day as stocks sink slightly lower past negative levels. In terms of 10yr note yields, we initially bounced off the 3.57 target, broke lower, restested it as support and are continuing to rally, currently at 3.562. FNCL 4.5's are 6 ticks up on the day at 101-12+ and S&P's are almost 3 points at 1325.39. The gains in MBS are enough for some of the earlier repricers to re-issue improved rate sheets. We've already seen one reprice for the better and will see more the longer these levels persist or the more the rally extends.

WASHINGTON, April 11 (Reuters) - The Federal Reserve's ultra-loose monetary policy remains appropriate given high unemployment and tame underlying inflation trends, Janet Yellen, the U.S. central bank's Vice Chair, said on Monday. Yellen said the recent run-up in oil and commodity prices was more of a damper on consumer spending than an upward risk to inflation, arguing that it would be difficult to see broad-based price increases without rising wages. "I anticipate that recent increases in commodity prices are likely to have only transitory effects on headline inflation," said Yellen, echoing views expressed by Fed Chairman Ben Bernanke in a speech last week. "This accommodative policy stance is still appropriate because unemployment remains elevated, longer-run inflation expectations remain well anchored, and measures of underlying inflation are somewhat low," Yellen said in prepared remarks released in Washington. Her comments suggests the Fed is committed to completing its $600 billion bond-buying stimulus program as scheduled, and that growing market chatter about possible policy tightening may be premature. ((Reporting by Pedro Nicolaci da Costa; Editing by Andrea Ricci)

The week is getting off to a slow start with both benchmark Treasuries and production MBS coupons finding little motivation to commit to a directional move. Trading volumes are low and investor attitudes are ho-hum as the data and events calendar is essentially empty today. Illustrating the illiquid environment are FNCL 4.5s which have bounced around a 7 tick range. Don't let price volatility fool you though, a sleepy feeling has settled in over the market and traders are operating in a fog. Zzzzzzzzzzzzzzzz. C30 Loan pricing is 13bps better on average among the five major lenders, making broad-based reprices for the better unlikely without further MBS price appreciations. We'd target 101-16 as the trigger level for lenders to begin recalling rate sheets. We do have one event on the horizon to discuss. At 12:15, Federal Reserve Vice Chair Janet Yellen speaks on "Commodity Prices, the Economic Outlook and Monetary Policy" before the Economic Club of New York. We expect to hear dovish comments from Janet.

WASHINGTON, April 11 (Reuters) - The global economy needs to be rebalanced to ensure sources of demand as the United States tightens its budget, the International Monetary Fund's chief economist said on Monday. "We truly believe that there cannot be strong, sustained, balanced world growth without rebalancing," IMF chief economist Olivier Blanchard told a news conference. "If the U.S. is going to do the fiscal consolidation of the size that it has to do then demand has to come from elsewhere." (Reporting by Tim Ahmann; Editing by James Dalgleish) *** IMF OFFICIAL SAYS SEES POTENTIAL SPILLOVERS FROM MIDDLE EAST VIOLENCE INTO REST OF THE REGION, COULD AFFECT OUTLOOK *** IMF OFFICIAL SAYS THERE CANNOT BE STRONG SUSTAINED GROWTH WITHOUT AN ECONOMIC REBALANCING IN THE WORLD *** IMF OFFICIAL SAYS REBALANCING MUST OCCUR IN EXPORTS FOR UNITED STATES TO ACHIEVE SUSTAINABLE GROWTH, NEEDS TO HAPPEN FASTER *** IMF OFFICIAL-LOOSER U.S. MONETARY POLICY SO FAR IN 2011 INCREASES DIFFICULTY IN MEETING G20 TARGET OF HALVING DEFICIT BY 2013

*** IMF OFFICIAL SAYS DOES NOT THINK RISING COMMODITY PRICES WILL DERAIL GLOBAL ECONOMIC RECOVERY *** IMF OFFICIAL SAYS INFLATION MAY REMIAN ELEVATED FOR SOME TIME BUT WON'T THROW GLOBAL ECONOMIC RECOVERY OFF TRACK *** IMF OFFICIAL SAYS EMERGING MARKET COUNTRIES MAY NEED TO USE CAPITAL CONTROLS TO AVOID DISRUPTION FROM LARGE INFLOWS OF CAPITAL *** IMF OFFICIAL SAYS APPRECIATION OF EMERGING MARKET COUNTRIES' CURRENCIES IS VITAL FOR NEEDED GLOBAL ADJUSTMENT *** IMF OFFICIAL-DOESN'T SEE SINGLE 'MAJOR DOWNSIDE' RISK IN GLOBAL ECONOMY,MORE FISCAL CONSOLIDATION NEEDED IN ADVANCED ECONOMIES *** IMF OFFICIAL SAYS UNCERTAINTY IS 'EXTREMELY LARGE' AROUND JAPAN'S RECOVERY FROM EARTHQUAKE *** IMF OFFICIAL SAYS WARNING EMERGING MARKET COUNTRIES THEY ARE GETTING TO THE POINT WHERE 'THINGS MAY BE TOO GOOD' *** IMF OFFICIAL SAYS GIVEN OIL PRICE RISES TO DATE, DO NOT SEE A MAJOR IMPACT ON INFLATION *** IMF OFFICIAL SAYS DOES NOT SEE MUCH OF A PASS-THROUGH FROM HIGHER OIL AND FOOD PRICES INTO CORE INFLATION IN ADVANCED ECONOMIES *** IMF OFFICIAL-DOESN'T SEE SINGLE 'MAJOR DOWNSIDE' RISK IN GLOBAL ECONOMY,MORE FISCAL CONSOLIDATION NEEDED IN ADVANCED ECONOMIES *** IMF OFFICIAL SAYS VERY IMPORTANT TO REALIZE IRELAND, GREECE, PORTUGAL FACE VERY DIFFICULT FISCAL ADJUSTMENTS *** IMF OFFICIAL SAYS IMF PROGRAMS FOR IRELAND AND GREECE ARE BASED ON ASSUMPTIONS THAT THEY WILL HONOR THEIR GUARANTEES *** IMF OFFICIAL SAYS SO FAR BAILOUT PROGRAMS IN GREECE AND IRELAND HAVE BEEN 'VERY GOOD DEALS' FOR THEM *** IMF OFFICIAL SAYS SPAIN HOUSING PRICES STILL HAVE 'SOME WAY TO GO' ON THE DOWNSIDE, BANKS CAN HANDLE WITHOUT SERIOUS TROUBLE *** IMF OFFICIAL SAYS SPANISH GOVERNMENT HAS TAKEN 'SIGNIFICANT STEPS,' DOING THE RIGHT THINGS TO DEAL WITH ECONOMIC PROBLEMS