Stocks have been sliding since domestic markets opened and bond markets have gone from "mostly flat" to "mostly rallying."

Economic data didn't play much of a role in that phenomenon. This is more like "ebbs and flows" working in our favor finally. In other words, global economic sentiment and equities had been generally bullish--bonds generally bearish. Technical resistance/support came into play. Then came the catalyst out of Europe in the overnight session (Merkel/Schauble cautioning no rapid solutions), and all of a sudden, we're looking at the best morning of gains in the 10yr note since 10/3.

-10yr yields are down 6+ bps at 2.188
- Fannie 3.5's are up 10 ticks at 101-01
- Fannie 4.0's are up 7 ticks at 103-10
- Ginnie 3.5's are up 10 ticks at 102-31+

Perhaps the bigger question is whether or not the rally persists or if it's just brief backfire in the engine that's been driving our pain over the past 2 weeks. It's too soon to say for sure, but 2.25 is beginning to look pretty supportive as far as a "top" in 10yr yields, and the touch of mid 2.29's overnight followed by the higher than average volume for those hours is another positive consideration.

We'd continue to keep an eye on the following levels by way of benchmarking the fight to stay sideways after finally breaking out of the ugly little sell-off from 10/4 to 10/12. (first chart in this post from Friday):

Industrial production increased 0.2 percent in September after having been unchanged in August. Previously, industrial production was reported to have stepped up 0.2 percent in August. For the third quarter as a whole, industrial production rose at an annual rate of 5.1 percent. Manufacturing output moved up 0.4 percent in September after having gained 0.3 percent in August. Production at mines advanced 0.8 percent in September, while the output of utilities decreased 1.8 percent. At 94.2 percent of its 2007 average, total industrial production for September was 3.2 percent above its year-earlier level. Capacity utilization for total industry edged up to 77.4 percent, a rate 1.7 percentage points above its level from a year earlier but 3.0 percentage points below its long-run (1972--2010) average.

Overnight Treasuries had a pretty rough go, getting as high as the mid 2.29's, before German Finance Minister Schauble said that broad-based solution to EU problems will take more time than most seem to be expecting. That brought yields down fairly rapidly, or was it merely early NY technical support for the 2.30 level?

Either way, MBS and TSYs are relatively flat to Friday's 5pm levels:

- Fannie 3.5's up 0-01 at 100-24 - Fannie 4.0's up 0-01 at 103-04 - Ginnie 3.5's unchanged at 102-22 - 10yr Yields down 0.0086 at 2.242

The Empire State Manufacturing data missed expectations coming in at -8.48 versus a -4.0 consensus. But considering that it was still microscopically better than last month's -8.82 and more importantly, that a majority of the weakness was seen in prices (we already know inflation is a non-issue, and other sections of the report showed strong employment and "new orders"), it's not truly a "worse-than-expected" report to the extent suggested by the headline.

Bond markets are trading it as such, having barely budged since it's release despite active trading. Next up on the data front is Industrial Production at 9:15am. Rate sheets in the mortgage world have justification to come in slightly improved if the same sideways themes keep playing out in bond markets this morning.