Nice little gainer for bonds today. 2.25 looks to have been confirmed as support and it was right down to 3.17 resistance. And while there's no guarantee we'll be in the same territory between now and tomorrow morning, it would take a pretty major change to threaten 2.25 support. Whether or not 3.17 is tested tomorrow may depend on the following barge-load of economic data. CPI and Jobless Claims lead off at 830am followed by Fed-Speak from Dudley at 835am. There are THREE more reports at 10am: Existing Home Sales, Philly Fed, and Leading Indicators. Top that off with other miscellany such as next week's auction supply announcement at 11am as well as a 5yr TIPS auction at 1pm and it's a healthy day of "stuff" to get through. For a closer look at all this, check out the following link:

The S&P index hit 1185 at its worst today but began to stage a small comeback. This initially looked like it might nudge benchmark yields higher which in turn, might have pressured MBS lower. But stocks bounced almost perfectly at yesterday's closing levels in the 1192's before turning positive again on the day. 10yr yields dropped a bp and Fannie 4.0's made yet another supportive bounce at 104-15 which has become a bit of a ledge of support into the afternoon. Reprices for the better have been ongoing as the high prices remain stable. Actual price volatility as well as implied volatility in the options markets are both low this afternoon. The former good for rate sheets and the latter good for MBS keeping pace with Treasury gains into the rally.

Asked about Perry's criticism of the Fed, Dallas Fed Pres Fisher said he's indifferent to political criticism and that the Fed will "do what is right." He moved on to answer questions about growth prospects saying that 3 pct grown was possible in the third quarter but that it's hard to gauge the impact of uncertainty over deficit-cutting. He reiterated a point made earlier in saying that the biggest deterrents to growth are fiscal and regulatory uncertainty and that growth prospects are closely tied to what congress decides. He acknowledged that he is not as pessimistic on the economy as a majority of FOMC voters and that there were big risks associated with more easing, particularly regarding inflation expectations.

(Reuters) - The U.S. Federal Reserve has no business easing monetary policy further when the real problem facing the economy is fiscal mismanagement in Washington, a top Fed official said on Wednesday. Speaking for the first time since his dissent last week on the U.S. central bank's promise to freeze interest rates near zero for the next two years, Dallas Fed President Richard Fisher -- known as an inflation hawk -- said his main worry was not the possibility that easy monetary policy could send prices spiraling higher. Rather, he said, his worry is that the liquidity the Fed has already created is sitting on the sidelines as businesses and households delay spending amid uncertainty over tax and regulatory policy. "I believe what is restraining our economy is not monetary policy but fiscal misfeasance in Washington," Fisher said in remarks prepared for delivery to a community forum in Midland, Texas. U.S. "fiscal authorities", he said, must address the nation's debt and deficit problems or risk encouraging businesses to move overseas in search of more certainty. Businesses "simply cannot budget or manage for the uncertainty of fiscal and regulatory policy," he said. "Monetary policy cannot substitute for what you must get on with doing," he added, addressing lawmakers directly. "Get on with your job." "Pointing fingers at the Fed only diminishes credibility," he said. "The ugly truth is that the problem lies not with monetary policy but in the need to construct a modern, appropriate set of fiscal and regulatory levers and pulleys to better incentivize the private sector to channel money into productive use in expanding our economy and enriching our people." It's a refrain that Fisher has repeated many times over the last year and a half. It sets him apart from his fellow dissenting colleagues, who cited worries over inflation and the strength of the economy as reasons for their dissents.

MBS moved to their highs of the day at 104-19 as stocks fell into negative territory for the first time today. 10yr yields fell to hit technical resistance at 2.17 but all markets have since bounced back slightly. 10's now stand at 2.18, S&Ps are 6 points higher to 1195, and Fannie 4.0's are down to 104-16. First of all, wow! What a world... where we can say FN 4.0's are DOWN to 104-16. That's higher than 2010's highs. Second of all, this is good enough for reprices for the better. More and more likely the longer we hold here. One caveat is that we still wouldn't put the anomalous negative reprice issue to bed just yet. Lenders improved 4.125% and below with yesterday's reprices so pipeline control is a possibility, albeit not nearly as likely as last week.

Starting with a look at 10yr notes, we see the 2.25 technical support level still intact with current yields at 2.2319. That was tested once this morning and MBS responded unfavorably, dipping to their lows of the day. Once things bounced back for 10's, MBS came back as well. Trading is a bit thin on all fronts, but Fannie 4.0's are at 104-10. As we'd hoped, the ground-holding in benchmarks paved the way for a relatively stable morning in MBS and consequently, rate sheet timing and quality. Despite unchanged MBS levels, rates are slightly improved, and are being released at historically normal times. Things definitely seem slow and uneventful so far today--exactly what this market needs. The fact that bonds are holding their ground despite a 10pt gainer in S&P's is also good, but we would not assume the stock lever to be a thing of the past by any means. Effectively, 10yr yields have done, or at least "are doing" what they need to do in order to fight off a parabolic, long-term reversal. That gives us the impression that the market's default may be slower and more sideways (or at least "less directional") until Jackson Hole or until some other piece of data steps up to the plate to shake things up. That's the current inertia though.... Sideways and calmer... Whodathunkit?!