Although MBS are at their lows of the day, that's only 1/32nd lower than last update due to today's tight range. FNCL 4.5's are up 4 ticks on the day to 103-18. 10yr notes are leaking slightly higher in yield as well, currently 3.67 bps lower on the day at 3.11 versus something closer to 4 bps lower at last check. Rounding out the trifecta is a stock market that continues to bounce around in its own narrow range. S&P's have stayed between 1314 and 1319 all morning. There aren't any reprice implications with current weakness despite MBS being at their lowest levels of the day. That potential would start to increase if FNCL 4.5's were to fall in line their highs from Friday, around 103-13/103-14.

RTRS -US FED EXPANDS LIST OF REVERSE REPO COUNTERPARTIES - NY FED. "Reverse Repos" are one tool the Fed will use to remove excess liquidity from the banking system (reserves). It will likely be one of the earliest strategies employed in the process of exiting accomodative monetary policy. This announcement is important because it shows the Fed readying for the day when it must begin that process. By keeping an open line of communication with the market regarding the exit planning process, the Fed is trying to boost investor confidence in their ability to avoid rampant inflation (many years off in our opinion). A standard repurchase agreement involves the acquisition of Immediately available funds (CASH) through the sale of securities with a simultaneous commitment to repurchase the same securities on a later date within one year...at a specified price. In a reverse repo, securities are acquired with a simultaneous commitment to resell.at a later date. Plain and Simple: a repurchase contract or "repo" is an exchange of a financial security for cash with an agreement to re-exchange those two assets at a later date for a specified price, which includes interest or its equivalent at an agreed upon rate. In this case a reverse repo would put remove cash from the banking system (which could be used to buy stocks or other risky assets) and replace it with an asset like a Treasury security or possibly an agency-MBS.

As opposed to any sort of abrupt snap-back from big overnight movements in stocks or bonds, both markets have moved mostly sideways this morning. With FNCL 4.5's holding a fairly tight range around 103-19 (they're currently at that level), lenders should be able to pass on more of the price gains than they otherwise would if MBS had only recently spiked to these levels. 10yr notes have also cut less than a 1bp range and remain around 4 bps better at 3.1066.

The nation’s biggest banks and mortgage lenders have steadily amassed real estate empires, acquiring a glut of foreclosed homes that threatens to deepen the housing slump and create a further drag on the economic recovery. All told, they own more than 872,000 homes as a result of the groundswell in foreclosures, almost twice as many as when the financial crisis began in 2007, according to RealtyTrac, a real estate data provider. In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead. Five years after the housing market started teetering, economists now worry that the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales. With the spring home-selling season under way, real estate prices have been declining across the country in recent months. “It remains a heavy weight on the banking system,” said Mark Zandi, the chief economist of Moody’s Analytics. “Housing prices are falling, and they are going to fall some more.”

Whether it be S&P's downgrade of Italy, weak economic data in China and Europe, election results showing Spain and Germany's overwhelmingly strong votes against current leadership, or any other reason to discount risk, bond markets are improved this morning. 10yr notes are almost 4 bps lower at 3.1084 and FNCL 4.5 MBS are 4 ticks improved at 103-18. S&P futures are down 15 points since Friday's close and ongoing movements there stand a good chance to be in the same direction as treasuries on this data-less day. If current MBS prices hold somewhat steady, we'd expect rate sheets to be arriving in slightly better shape than Friday's last offerings.

Led by declines in production-related indicators, the Chicago Fed National Activity Index fell to –0.45 in April from +0.32 in March. April marked the lowest reading of the index since August 2010. Three of the four broad categories of indicators that make up the index deteriorated from March, but two of those three categories made positive contributions to the index in April. The index’s three-month moving average, CFNAI-MA3, declined to –0.12 in April from +0.08 in March, turning negative for the first time since December 2010. April’s CFNAI-MA3 suggests that growth in national economic activity was somewhat below its historical trend. With regard to inflation, the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year. Production-related indicators made a contribution of –0.16 to the index in April, down sharply from +0.31 in March. Manufacturing production decreased 0.4 percent in April after rising for nine consecutive months, and manufacturing capacity utilization declined to 74.4 percent in April from 74.8 percent in March. Parts shortages that resulted from the earthquakes in Japan contributed to a decline in motor vehicle and parts production.

UPDATED AT 11:30AM.