To be clear, we're not continuing to mention Jackson Hole because we look to it as some quintessential answer to the market's problems, simply that--and we say this for everyone's sake--we need to get past it. Because last year's Jackson Hole is widely regarded as the birthplace of QE2 in the media, this year's chat has been built up to epic proportions. The sooner this unknown is taken out of the market, the sooner markets can get back to organically trading data and events. Apart from more grains of sand falling in that hourglass, tomorrow also offers economic data and another auction. This time, it's the more-pertinent-to-MBS 5yr Note. (why more pertinent? 5 years is a lot closer to the duration of a current MBS coupon than 2yrs, so it's a better benchmark against which to compare MBS and movements in 5's are more likely to correspond with movements in MBS). That happens at 1pm. Before that, there's the usual MBA Applications at 7am. Looking for big things from that refinance index. Then the headliner of tomorrow's econ calendar hits at 830am with Durable Goods and the FHFA House Price Index prints at 10am. For the consensus estimates as well as a look at the rest of the week, check the following link:

The trading session was disrupted today when a magnitude 5.9 earthquake rattled the East Coast from Virginia to Toronto, prompting evacuation of the Pentagon, U.S. Capitol and many trading floors. Although the immediate impact was positive for rates, the tide has turned and stocks are now rallying toward a test of technical resistance. This positive movement in equities has pushed production MBS prices lower; the Fannie Mae 4.0 coupon is currently -6/32 at 103-26, a key support level. When accompanied by the nervous sentiments surrounding the unusual occurrence of an East Coast earthquake, these price declines are large enough to warrant reprices for the worse. BEWARE.

Leading up to the 1pm release of the 2yr Note Auction, the S&P index rallied over the important 1150 level. Bonds were slightly weaker as a result with Fannie 4.0's briefly touching 103-29. But the auction results bring a small but welcome boost to bonds. The auction was met with excellent demand with 3.41 dollars bid for each dollar up for grabs, higher than recent averages of 3.19. The high yield came in at .222, in line with expectations as measured by the 1:01pm when-issued yield. Treasuries and MBS got a slight, but noticeable boost as a result. 4.0's are back to vacillating between 103-30 and 103-31. 10yr yields are holding under 2.12, currently at 2.113. Stocks have also fallen to 1148, and the longer they stay under 1150, the better the implication for the stability of the bond market going forward. Most importantly, these auction results and the current reaction in markets means that MBS have been stable long enough, and improved enough for morning rate sheet time that we'll start to see reprices for the better if we stay in this range. A few lenders are already out with improvements.

As stocks turned away from a break of 1150 in S&P's (don't relax yet though... they're still close at 1147.40) bond markets are staying stable with the 10yr note still near unchanged levels and Fannie 4.0's up 2 ticks on the day at 104-01. We continue to think that a significant break of 1150 could ultimately weaken MBS today, but the more pressing matter could be the response to the 2yr note auction at 1pm. No guarantees it will create movement in either direction, but always a possibility.

1 tick down, 1 tick up... Both the Fannie 4.0 and 10yr note have flickered red to green, green to red more times than a defective string of X-mas lights. Which of those colors ultimately gets the nod continues to seem tied to the fate of stocks. S&P's are dangerously close to breaking higher on the day, currently at 1139.76 with highs in the 1141's just overhead. We get the impression that bond markets are sensitive to a run toward 1150 in S&P's, but as long as that threat is not materializing, losses have been contained. Fannie 4.0's are currently at 103-30, 2 ticks down on the day. 3.5's however are 3 ticks up on the day at 101-06. 10yr yields round out the color spectrum, unchanged at 2.109. Specifically with respect the the 4.0 coupon, looks like we could be seeing a bit of stored energy with the recent narrow sideways range between 103-30 and 104-02. A break in either direction could see extra momentum.