Without the debt ceiling drama, we'd expect things to be a lot tamer this Monday morning. But After the initial selling at the open, things have calmed down somewhat and (fingers crossed), we might even be seeing some technical support in for 10yr notes around 3.03. But the extent to which that support is promising is trumped by the concern that we could already be looking at RESISTANCE preventing any sort of recovery rally so far today. After yields first rebound this morning, they bounced higher just before reaching 3%. That's happened again several times since, making a range between what we'd hope would be a 3.03 support and something between 3.0 and 3.01 as resistance. Those levels equate to roughly 100-09 and 100-14 in terms of Fannie 4.0 MBS. They're are currently at 100-11 while 10yr notes are at 3.025 and have moved north fairly quickly in recent moments. Some lenders may be out later than normal with their first rate sheets this morning as they wait for things to play out a bit more. And while rate sheets should be plenty weak enough to mean there's no real "reprice" implication, still be aware of the recently quicker pace of selling. (NOTE: this update labeled "alert" in order to reach mobile users. No major reprice implications.)

Domestic markets are waking up to news that Congressional leaders and Obama failed to make meaningful progress on the budget deal and that the most likely scenario now looks to be some sort of stop-gap, pushing out the inevitable. MBS and Treasuries don't much care for this news. If charts could talk, you can almost hear the groans of "they did what? Seriously?" Then "Oh well, time to sell I 'spose" And sell they have, not in epic fashion, but very near the lowest levels since July 8th. Fannie 4.0's are down 9 ticks at 100-12. Lenders probably won't like the volatility implications either, so we'd be surprised if rate sheets weren't a fair bit worse. 10yr notes are up almost 6 bps at 3.023. Both markets had looked like they might be getting a bit of support after the first glut of selling, but alas! More market participants waking up, drinking the coffee, reading the news, and heading right over to the "Sell Fixed Income" counter before going back for a second cup. Too much peer pressure to do anything else.