Today was the first real day of economic releases this week, and it didn't go so well for bond markets. To whatever extent we're seeing a course correction where the recent bond market rally is adjusting it's pace based on new economic data, the rest of the week will be critically important to the clarity of that mission. Tomorrow is certainly no exception as it has a packed econ schedule. At 830am, both the Consumer Price Index (measure of consumer level inflation) and the Empire State Manufacturing Survey will be released. After only a short breather, the Treasury International Capital report will print at 9am, detailing foreign holdings of U.S. Debt. The frenetic pace continues with Industrial Production reporting only 15 minutes later at 915am, followed by the Housing Market Index at 10am. An absolutely jam-packed day...

Fannie Mae 4.0 MBS are currently down 20/32nds to their lowest level of the day at 100-06 following Bernanke's speech on the debt limit situation. Benchmark 10yr yields are at their highs of the day, just now breaking across 3.10. Additional reprices for the worse are possible, but especially from lenders who priced before 10am and have not yet repriced for the worse.

(Reuters) - U.S. Federal Reserve Chairman Ben Bernanke warned on Tuesday that a failure to lift the government's $14.3 trillion debt ceiling risks a potentially disastrous loss of confidence in America's creditworthiness. Bernanke said in the absence of a quick resolution to the battle over the debt limit, the United States could lose its prized AAA credit rating, while the dollar's special status as a reserve currency might be damaged. "Even a short suspension of payments on principal or interest on the Treasury's debt obligations could cause severe disruptions in financial markets and the payments system," Bernanke said in remarks prepared for delivery at an event sponsored by the Committee for a Responsible Federal Budget. Inaction could also "create fundamental doubts about the creditworthiness of the United States, and damage the special role of the dollar and Treasury securities in global markets in the long term," Bernanke added. (By Pedro Nicolaci da Costa)

MBS are once again near their lows of the day as benchmark 10yr notes find themselves again testing 3.09 ahead of the Bernanke's 230pm speech. Although there is no Q&A scheduled, neither is there prepared remarks, so there is market moving potential. Volume is about a 10th of what it was after econ data this morning, but if 10yr notes break above 3.09 and volume picks up, it could result in additional pressure on MBS prices. Fannie Mae 4.0 MBS are currently down 17/32nds on the day at 100-09, nearing levels where reprices for the worse are at risk, especially from lenders that priced before 10am but have not yet repriced for the worse.

10yr yields are once again right on the doorstep of 3.09 as stocks push to their highest levels of the day. Fannie Mae 4.0 MBS are down half a point on the day at 100-11 and the S&P just hit 1290. Shortly before 1pm, bonds began to hold their ground against advancing stock prices but recent upswings have had more of an effect on 10yr yields. That notwithstanding, the 3.09 technical level is holding firm for now, as positive sign considering S&P's are almost 4 points higher than the last time 10yr yields hit 3.09. No major implication on reprices for the better or worse here, just an update the MBS's benchmark guidance-givers are under pressure, but haven't given up the fight at 3.09 yet.

Although MBS and Treasuries have leveled off from their earlier sell-offs, it didn't happen fast enough to prevent several lenders from repricing for the worse. The problem arose due to the fact that MBS held fairly steady after the initial post-data weakness, and did so long enough for many lenders to put rates out. But the next leg down for Fannie Mae 4.0 MBS took another 5/32nds off the price, enough for lenders to reprice depending on how much weakness they baked into initial rate sheets. 4.0 MBS fell as low as 100-07, but have since recovered to to 100-12. 10yr Treasuries stopped the bleeding before breaking over 3.09 and S&P's have leveled off (for now) just under 1289.

(Reuters) - JPMorgan Chase & Co has pushed out its head of home lending, David Lowman, who was sidelined in February after the bank racked up billions of dollars in losses on soured mortgages and became mired in litigation over a wave of foreclosures. "Dave Lowman and I have decided he will leave the firm," Frank Bisignano, the bank's chief administrative officer, said in a memo that was sent to bank staff on Tuesday. A copy of the memo was obtained by Reuters. "He worked here during extraordinary times and has said he will take some much needed time off," the memo said. Lowman had joined JPMorgan from Citigroup in 2006. During his tenure at JPMorgan, the bank picked up bad mortgage assets through its acquisitions of investment bank Bear Stearns & Co and retail bank Washington Mutual. JPMorgan Chief Executive Jamie Dimon in February sent Bisignano, a top aide, to the company's retail banking division to fix its struggling mortgage business. (Reporting by David Henry, editing by Maureen Bavdek)

"Course Correction" is a good way to think about this morning's sell-off. Bonds HAD been on one course, fueled by an ever-increasing supply of worse-than-expected economic data. With this morning's better-than-expected economic data, we're seeing a logical correction to the pace of the broader bond-market rally. So far, it's a very similar magnitude of correction to those seen during the prolonged rally in the middle of 2010. On several occasions, as 10yr notes moved from 4.0% to 2.4%, yields rose by almost 20 bps despite the shape of the longer term rally remaining intact. After moving quickly to the 3.055 technical in extremely high volume, 10's are confirming this correction with ongoing weakness and maintaining relatively high volume. Yields on 10yr Treasuries are currently at 3.081 and Fannie Mae 4.0 MBS are down 17/32nds on the day at 100-10.