Even though there's no economic data on the calendar, and even though we didn't expect "the guidance" offered this week to start kicking in until tomorrow, we're still struck by just how quiet things are. You can quantify "quiet" pretty much however you want. Is volume exceedingly low? Are trading ranges exceedingly narrow? Are we nearly 100% sideways and free from directional movement? Yes, yes, and yes. Granted, we've likely just invoked some sort of volatility curse in calling so much attention to the lack of, well, anything, but in for a dime, in for a dollar! So here's a look at levels. Since just after 9am, there's only really been one level in MBS as Fannie 4.0 coupons have been between 100-25+ and 100-26+. In the interest of efficiency and conservation, you might as well just say 100-26, though extremists might throw a "give or take" caveat onto the end of that. Moving to 10yr notes, things get even easier. Yields have been almost exclusively in the 2.96's since just after 8:30am. Currently, MBS are at the higher side of their range, at 100-27, and 10 yr yields are testing the 2.95's. Maybe our volatility curse is already in effect, but thankfully moving things in a bond-friendly direction.

(Reuters) - Intensifying bond market anxiety centred on Italy and impending bank stress test results look set to drive interbank funding rates higher and boost demand for European Central Bank loans. Bank-to bank lending rates rose on Monday on signs the euro zone debt crisis is escalating to a new level as investors turn their fire on Italy, the euro zone's most heavily indebted state. The benchmark London interbank offered rate (Libor) for three-month funds rose by the largest amount since early May to 1.54563 percent, its highest level since March 2009. Equivalent euribor rates also rose. Libor rates have been on an upward path over recent months due to the ECB's rate hiking cycle, and analysts said souring market sentiment was giving rates a further push higher by making banks less willing to lend to each other on an unsecured basis. (By William James)

The Employment Situation Report sparked an aggressive rally for bond markets on Friday, bringing Fannie Mae 4.0's to 100-21 at their best and 10yr notes close to breaking 3.0. Now this morning, the familiar scenario of Eurozone debt concerns adding to Flight-to-Safety bond market bullishness brought 4.0's close to 101-00 and 10yr yields down to 2.94. This time, it's Italy and Portugal that are in focus as opposed to the usual suspect Greece. Italian CDS Spreads--the cost of insuring government debt against default--rose to record highs vs benchmarks ahead of an emergency meeting to address concerns that Italy could soon experience a similar crisis to Greece. Reuters reports that German Chancellor Angela Merkel today said Italy needed to demonstrate it was undertaking the budget reforms needed to restore confidence in the euro zone. Read the full Reuters story here: