10yr yields since Thursday have been contained with a good degree of regularity by a bullish trend channel. In that technical context, today's move down to 3.26, then quickly up to 3.3 only to moderate to 3.28 seems nominal and perhaps even boring. But equities/TSYs overlays are starting to look a bit more connected since the noon hour. 10's were able to get a friendly bounce right after an unfriendly bounce for stocks. MBS are a bit confused and a bit put-off by the volatility, with 4.5's down 2 ticks on the day at 102-27 versus 10yr notes almost 1bp in yield improved on the day at 102-28. Risks of reprices for the worse are greatly diminished with the recent bounce at 102-25 though, if not altogether gone.

The major caveat here is the relative illiquidity of MBS trading at the moment. Things are fairly thin and we don't have more than a few ticks in the past few minutes supporting the recent drop in prices. FNCL 4.5's are down 4 ticks on the day now to 102-25, which matches the lowest level of the day. 10yr notes, more liquid by comparison don't exhibit the same spiky movements and have merely backed up steadily since just after the noon hour. Reprices for the worse are now possible.

FNCL 4.5 MBS have moved down 4 ticks in the last 2 hours and benchmark 10yr notes are up from the mid 3.26's to just over 3.292. This brings MBS back to their morning trading range which means that reprices for the worse are unlikely from lenders who released rates before 10:15am, but there's a risk on the horizon for rate sheets that came out closer to the noon hour of potential reprices for the worse. We're alerting you to let you know about the marked shift in tactical trends, as we wouldn't say that reprice risk has yet arrived. However, that can change if the trend of the past two hours continues to take MBS a few ticks lower from current levels.

* FED SAYS BANKS GENERALLY EASED CREDIT STANDARDS IN Q1, DEMAND FOR COMMERCIAL LOANS INCREASED *FED LOAN OFFICER SURVEY - LOAN DEMAND FROM BIG FIRMS INCREASED, INCREASED LOAN DEMAND FROM SMALL FIRMS LESS WIDESPREAD * BANK APPETITE FOR MAKING CONSUMER LOANS AT HIGHEST LEVEL SINCE 1994 * FED - BANKS REPORTED SOME RISE IN DEMAND FOR AUTO LOANS, LITTLE CHANGE IN DEMAND FOR CREDIT CARD, OTHER CONSUMER LOANS

RTRS - 1:52 - BANKRUPTCY TRUSTEE FOR FORMER THORNBURG MORTGAGE SUES UNITS OF SEVERAL BIG BANKS OVER "COLLUSIVE SCHEME," SEEKS $2.2 BLN RTRS -1:55 - TRUSTEE FOR FORMER THORNBURG MORTGAGE SUES GOLDMAN SACHS GROUP INC GS.N , BANK OF AMERICA CORP , BARCLAYS PLC RTRS-1:58 - THORNBURG TRUSTEE ALSO SUES UNITS OF JPMORGAN CHASEJPM.N , CREDIT SUISSE CITIGROUPC RBS , UBS AG

Even on an intraday basis, FNCL 4.5's at their best, made it to 102-29+ in January. Their currently at 102-31 and have even touched 103-00. Interestingly enough, 10yr notes are also at 102-31 on their 3.625 coupon, putting the yield at 3.2696 currently, as low as they've been since mid March, and factoring out that headline driven flight-to-safety, as low as they've been since December 2010. Reprices for the better continue to be possible but not necessarily likely. Stocks are still in the red but have stemmed losses for now.

MCLEAN, Va., May 2, 2011 /PRNewswire/ -- Freddie Mac's full menu of relief policies for borrowers affected by disaster is being extended to homeowners whose homes were damaged or destroyed by the recent storms in the South and are located in counties that the President has declared to be Major Disaster Areas. Freddie Mac (OTC: FMCC) is one of the nation's largest investors in residential mortgages. "Freddie Mac and the nation's mortgage servicers will work together to advance available mortgage relief to homeowners affected by these devastating storms," said Freddie Mac Executive Vice President of Single-Family Business, Operations and Technology, Anthony Renzi. "We have instructed our servicers to work with borrowers with Freddie Mac-owned mortgages affected by these terrible storms to grant forbearance on their mortgage payments for up to one year." Freddie Mac disaster relief policies provide a number of ways for mortgage servicers to help affected borrowers in the Major Disaster Areas where federal Individual Assistance programs have been extended. Freddie Mac, for example, gives servicers the discretion to reduce or suspend mortgage payments for up to 12 months for borrowers with Freddie Mac-owned mortgages that have been affected by a disaster. Each case must be individually assessed to determine what assistance will best fit the homeowner's circumstances. Freddie Mac also strongly encourages servicers to help affected borrowers with Freddie Mac-owned loans by: Suspending foreclosure and eviction proceedings for up to 12 months; Waiving assessments of penalties or late fees against borrowers with disaster-damaged homes; and Not reporting forbearance or delinquencies caused by the disaster to the nation's credit bureaus.

Volume was relatively low earlier in the morning, but built to a crescendo during the hour ending 11:00am when 10yr contracts crested the 150k level. With the exception of 4/28, where that happened during THREE separate hours, this hasn't happened since 4/21. The biggest surges were seen when yields fell to and bounced from lows marked by 3.27's in 10yr yields. Bond markets have stayed rather strong today and have little reason to discontinue that trend for now as stocks have fallen below their previous lows, though are not in negative territory yet. FNCL 4.5's continue to face resistance at current levels, but given the extended period of time near the highs today, reprices for the better are possible. 4.5's are currently up a tick at 102-30. A 103 handle would be needed for reprices to be widespread.

at 3.275, 10yr yields are as low as they've been all year with the exception of the most acute hours of the Japan Crisis in March. MBS were relatively outperforming benchmark 10's earlier today but as each have stepped into positive territory, 10's find themselves with a bit of room to run whereas MBS resistance at current levels is pretty severe. with 4.5's near 103-00 and 4.0's approaching PAR, we're at that cuspy zone where further gains would accelerate a shift in Best-Ex rates and add another chip in the pile of shifting the dominant production coupon. There's understandable hesitancy there considering the long term rates outlook doesn't allow for a 4.0 production coupon for more than a few months. Back to the here and now though.... MBS would likely need to add a few more ticks in order for broad-based reprices to become likely.