Much in the same way 10yr yields are experiencing tough resistance floors around the 3.14 level, MBS are doing battle with their own demons. But for MBS, the demons are in the ceiling, and the ceiling is around 103-12 in FNCL 4.5's. Keep in mind that these sort of technical mileposts are not hard and fast brick walls and that a certain amount of deviation from the exact levels are perfectly expected in both MBS and TSYs. Anywhere between 3.13 and 3.16 is fair game for considering resistance to remain intact. Same story with 103-12 in MBS. We saw 103-13 on Friday, but the majority of "bounces" occur slightly lower. Ultimately, what matters most any time we see prices move generally sideways like this is "what they do next and with what kind of volume." At this point in the day, volume is relatively low, and the day in general is relatively lower than Friday. The leading candidate to motivate both TSYs and MBS from their respective resistance levels is Wednesday's FOMC minutes, but we're in one of those "storing energy" episodes, so be ready for it to happen at any time this week and in a more decisive fashion than the recent range-bound trends. Still... This is the kind of range-bind we don't mind as it continues to allow for the best rates of the year. Several additional lenders have repriced as MBS continue to grind near their ceiling. More could follow before the day is out.

NEW YORK, May 16 (Reuters) - U.S. Treasury yields have likely bottomed after the recent rout in commodity markets caused a safe-haven stampede into bonds, and will inch higher, a top bond fund manager at BlackRock said on Monday. Rick Rieder, who oversees half of BlackRock's $1.15 trillion of fixed-income assets, told Reuters that he will consider buying Treasuries if 10-year yields rose to the 3.60 to 3.75 percent range, 0.40 percentage point above their current level. "Now it's hard to see tremendous upside (on yields)," Rieder told Reuters of the Treasuries market. Rieder, who is chief investment officer for fixed income, fundamental portfolios, was reluctant to add risky debt securities ahead of the Federal Reserve completing its $600 billion bond buying program, dubbed QE2. BlackRock has been paring its holdings of the so-called non-agency mortgage bonds that had been rallying for nearly two years, he said. The outlook is short-term, however, as the firm's portfolios are expecting to resume its purchases at lower prices, Rieder said. "We've upgraded in quality in portfolios, increased liquidity in the instruments we hold in some of them, as you get closer to the end of QE2 on the assumption you get more volatility," he said. Separately, it would be tough for Treasury Inflation-Protected Securities to sustain their rally this year after the commodity sell-off and a fall in inflation expectations, Martin Hegarty, who co-heads the management of Blackrock's $22 billion in global inflation-linked portfolios, told Reuters. (Reporting by Richard Leong and Al Yoon, Editing by Chizu Nomiyama)

Two lawmakers have introduced bipartisan legislation that would eliminate Freddie Mac and Fannie Mae while still keeping a government presence in the housing finance marketplace. HR 1859, "The Housing Finance Reform Act of 2011", is sponsored by Congressmen Gary Peters (D-MI) and John Campbell (R-CA). Peters/Campbell have aimed this bill at overhauling the federal mortgage finance system and winding down the embattled mortgage giants, Fannie Mae and Freddie Mac, while establishing a new system of private mortgage associations - funded by private capital. Sponsor's believe the legislation will ensure liquidity in the secondary mortgage market because mortgage investments would still be backed by a government guarantee, which the plan has mandated strict standards around to safeguard taxpayers. In addition to these mandates, the legislation would extend current loan limits until Fannie and Freddie are no longer in conservatorship. FHFA has six months to provide a transition plan to wind down the GSEs and must determine within one year after five associations have been chartered whether the GSEs can be safely placed into receivership, an event that must occur no later than three years after two associations have been chartered.

In a break from a recent trend of "lower highs and higher lows," MBS are a few ticks better than their previous high, currently up 3 ticks on the day at 103-11. Reprices for the better are possible at these levels, and become increasingly likely the longer they hold or the greater margin by which they are surpassed.

In the course of the last two hours, 10yr yields improved 4 bps and FNCL 4.5's rose from 103-05 to 103-10 before running out of steam. 10's are currently at 3.1691 and 4.5's at 103-09. The joint movements are emblematic of markets that continue to bide their time, choosing to favor what has mostly been a consolidating range in the month of May. The resistance bounces for both MBS and TSYs fall in line to a series of slightly less ambitious resistance bounces. But the supportive levels have been getting higher and higher as well. This combines with the moving trend on the resistance side to suggest a consolidation centering on 3.20 in 10yr notes (roughly).

(Freddie Mac) -HomeSteps, the real estate sales unit of Freddie Mac, is launching a nationwide sales promotion for its inventory of foreclosed homes starting today. The HomeSteps Summer Sales Promotion is offering up to 3.5 percent buyer's closing cost and a $1,200 selling agent bonus for initial offers received between May 16, 2011 - July 31, 2011 and escrows are closed on or before September 30, 2011. This offer is valid only on HomeSteps homes sold to owner-occupant buyers. A two-year Home Protect® limited home warranty that covers electrical, plumbing, air conditioning, heating and other major systems and appliances is offered on some eligible HomeSteps homes. Home Protect also provides discounts of up to 30 percent on the purchase of appliances. (Terms, conditions and limitations apply. Not all homes or borrowers will qualify. For details, see www.HomeSteps.com/smartbuy.)

Rate sheets are about unchanged vs. indications on Friday when both reprices for the better and worse were reported in the same session. At the moment, risk is skewed toward the potential for unfavorable reprices, especially with rebate mostly flat and production MBS coupon prices moving marginally lower. Our negative reprice target is 103-02 in FNCL 4.5s. This would imply benchmark 10s were testing 3.21% support. Reprices for the better are more likely to be awarded as FNCL 4.5s move into positive territory and approach the 103-12 level. We currently do not recommend floating if you need to lock within the next week to 10 days.

(Freddie Mac) -In the first quarter of 2011, fixed-rate loans accounted for more than 95 percent of refinance loans, based on the Freddie Mac Quarterly Product Transition Report released today. Refinancing borrowers overwhelmingly chose fixed-rate loans, regardless of whether their original loan was an adjustable-rate mortgage (ARM) or a fixed-rate. An increasing share of refinancing borrowers chose to shorten their loan terms during the first quarter. Of borrowers who paid off a 30-year fixed-rate loan, 34 percent chose a 15- or 20-year loan, the highest such share since the first quarter of 2004. Eighty-four percent of borrowers who had a hybrid ARM chose to refinance into a fixed-rate product during the first quarter, continuing a pattern of the past few years of borrowers revealing a strong preference for fixed-rate over variable-pay contracts."The mortgage rate on 15-year fixed was about three-fourths percentage point below that on 30-year fixed during the first quarter. For borrowers motivated to refinance by low interest rates, they could obtain even lower rates by shortening their term. In the first quarter we saw the largest share of borrowers shortening their term while refinancing in seven years."