Perhaps "volatility expected" in the title of the morning update was an understatement. 10yr notes are experiencing almost a complete retrace of yesterday's steepest losses. 2.06+ resistance looms large though, so we're not sure where things will go from here.

For now, we do know that Fannie 4.0's are up almost 10 ticks from their lows, down only 1 tick on the day now at 103-31. 3.5's are down 2 ticks at 100-31. Early pricing lenders may reprice for the better if current levels hold or are improved upon. But this might not happen as quickly as it otherwise would due to the rally so closely following some lenders initial rate sheet releases.

(Reuters) - U.S. consumer sentiment inched up in early September, but Americans remained gloomy about the future with a gauge of expectations falling to the lowest level since 1980, a survey released on Friday showed.

The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment edged up to 57.8 from 55.7 the month before, which had been the lowest level since November 2008. It topped the median forecast of 56.5 among economists polled by Reuters.

"Overall, the data indicate that a renewed downturn in consumer spending is as likely as not in the year ahead," survey director Richard Curtin said in a statement. "Even without a downturn, consumer spending will not be strong enough to enable the rapid job growth that is needed to offset reduced long-term expectations."

The gauge of consumer expectations dipped to 47.0 from 47.4. It was the lowest level since May 1980. The economic outlook for the next 12 months fell to 38 from 40, the lowest since February 2009 when the world economy was gripped by the credit crisis.

The survey's barometer of current economic conditions gained to 74.5 from 68.7, and better than a forecast of 68.0. (Reporting by Leah Schnurr, Editing by Chizu Nomiyama)

Yesterday's afternoon trading gave us the impression that the week seemed to have prematurely ended after the morning's spikes, first on tradeflows out of Europe around 8:39am and then on headlines out of Europe at 9am (it almost seems like Europe is important to US bond markets these days?). Once those losses were in, the rest of the day was decidedly sideways.

MBS and longer-dated Treasuries are both weaker this morning, but this is just an incidental consequence of the range established yesterday. We're tempted to say that yesterday's high yields in 10yr notes should provide support today (as they have so far this AM), but even if they do not, substantial weakness and higher-than-expected volume would be needed to suggest anything significant is transpiring.

TIC data is already out and of zero consequence (it pertains to July--a completely different world) and all that's left on the domestic economic calendar is Consumer Sentiment at 955am. It'll be a great validation or rejection of this notion that US data isn't that important right now, so we'll wait and see (and guess "validation," but you never know...)

For now, suffice it to say that volume is light, stock futures are rallying and have pushed 10yr notes up to 2.107, MBS are weaker, and rates should be worse today if current levels prevail (.125-.375). Fannie 4.0's are down 5 ticks at 103-27 and 3.5's are down 8 ticks at 100-25.