If you haven't heard/seen from multiple sources, multiple times, the story of the morning is certainly the long-awaited release of more information on the next evolution of HARP.  Things have come a long way in a short time and ultimately it feels like the FHFA agreed to include "more than expected" at least if Demarco's first official statement on the matter serves as the baseline.  From that initial focus on lifting the LTV caps, we've added LLPA relief (although, with caveats), Reps and Warrants relief (more caveats), and even potential MI portability (no details yet and probably a good piece of land to found "Caveat City"). 

Still...  It seems like "more" than we were conditioned to expect, perhaps by design.  Either way, it's a lot to digest and traders have certainly been in the process of digesting this morning.  MBS spreads were in a sort of muted "panic mode" earlier as MBS were drastically underperforming Treasuries.  But that had more to do with traders' poker faces as opposed to a viable threat that the underperformance would continue.  Even so, there has been and continues to be a bit of volatility in figuring out where things will settle, and that volatility can be seen in this morning's chart of 3.5's from the MBS Live Dashboard.  Note the relatively larger swings this AM vs Friday, but also notice they've been occurring within a measured range and are showing signs of consolidating.

But the bigger threat to MBS may not be HARP related.  In fact, it's been all but explicitly stated that the Fed will keep finding ways to step in and keep spreads in check until the mortgage/housing markets improve.  Well, if you consider Dudley a member of the Fed, maybe we're close already. The NY Fed Pres said the following earlier today: "The fact that we decided to reinvest maturing funds back into the agency mortgage-backed securities market I think is a signal that we have some concerns about the level of mortgage spreads, and certainly that we do care about housing affordability as a way of supporting economic activity."

So the bigger threat may in fact simply be the broader market movements.  Stocks are making menacing gestures, trying to give the impression they're ready to rally.

Recent stock strength coincides with a recent probably breakout of the following bullish corrective channel in Treasuries.

While this doesn't indicate a reversal and movement to higher yields, that's certainly one of the possibilities on the table.

More likely though is that we're looking at some sort of lingering uncertainty about the clean-up efforts in Europe as well as the domestic economic situation.  That would suggest generally sideways action with elements of bullish and bearish trends coexisting and competing, at least until some game-changing developments hit the tape.