The following article from Reuters is potentially interesting to markets as it suggests that the EFSF being leveraged through the ECB (something that had given a lift to stocks, and been negative for bonds) has been ruled out. It also highlights 10/23 as a potentially important date for news from the EU...

(Reuters) - Germany's Angela Merkel expects European leaders to produce a "work plan" for Greece at an Oct. 23 summit, possibly including a permanent "troika" mission to monitor its debts, she told her Christian Democrats (CDU) on Tuesday, party sources said.

Merkel also said the summit should find ways to ensure the euro zone rescue fund (or European Financial Stabiltiy Facility) is used effectively, but that leveraging it via the European Central Bank had been ruled out.

CDU sources present at a meeting with the chancellor said she also expected the summit to agree on sending deficit-busting countries to court.

MBS prices came into the NY session significantly improved from yesterday, briefly matching the highs seen on 10/13. Treasuries were even stronger overnight, as they usually are into a healthy little rally, briefly hitting the 2.08's before NY volume picked up. When it did, yields began rising and MBS prices began falling, WELL BEFORE the release of the higher-than-expected Producer Price Index.

MBS have tightened somewhat, but yet another article on refi.gov in the WSJ this morning is keeping some pressure on spreads. Current levels:

-Fannie 3.5's down 3 ticks at 101-05
-Fannie 4.0's down 3 ticks at 103-12
- Ginnie 3.5's down 2 ticks at 103-04
-10yr yields down almost 1 bp at 2.146

2.15 looks like a potential short term pivot and MBS seem like they're trying to hold onto some sort of support at their pivot point on yesterday's highs (well... NEAR yesterday's highs anyway).

(Reuters) - U.S. producer prices rose more than expected in September to record their largest increase in five months as gasoline prices surged, a government report showed on Tuesday.

The Labor Department said its seasonally adjusted index for prices received by farms, factories and refineries, increased 0.8 percent after being flat in August. Economists polled by Reuters had expected prices to increase 0.2 percent.

Excluding volatile food and energy, wholesale prices rose 0.2 percent last month after inching up 0.1 percent in August. That was above economists' expectations for a 0.1 percent gain.

But the strong rise in wholesale prices last month is unlikely to spark a broad increase in inflation pressures given the weak economic environment.

It will probably have little impact on the Federal Reserve, which focuses on core inflation, as it weighs options to help the anemic recovery and pull down an unemployment rate stuck above 9 percent.

Pressure on the U.S. central bank has lessened in recent weeks as data such as retail sales and the trade balance suggested economic growth accelerated in the third quarter after the second quarter's tepid 1.3 percent annual rate. Economists estimate gross domestic product grew at an annual pace of anywhere between 2.3 percent and 2.7 percent in the third quarter.

Wholesale prices outside of food and fuel were bumped up by a 0.6 percent rise in light motor trucks -- accounting for a third of the rise in the core PPI measure. Light trucks had risen 0.1 percent in August.

In the 12 months to September, core producer prices rose 2.5 percent after increasing by a similar margin the prior month. The rise was above economists' expectations for a 2.4 percent advance. (Reporting by Lucia Mutikani, Editing by Andrea Ricci)