The majority of today's trading in MBS has taken place...

Without much by way of headline cause & effect, bond markets have leaked into their weakest territory of the day with 10yr yields pushing the mid 1.86's and Fannie 3.0's down to 104-10, 4 ticks from their earlier highs.

Both MBS and Treasuries weakened somewhat during Obama's address which centered on the upcoming debt ceiling debate, but several Fed speeches were also out during that time, perhaps giving markets a bit more to consider ahead of Bernanke's speech tonight.

Current levels are probably best-viewed as a sort of line in the sand. At or above these prices, reprice risk is minimal, if it exists at all. It could begin to increase if we dip to 104-09 or below. All that having been said, markets aren't terribly active and trading hasn't been terribly directional--prefering instead to grind sideways at these lows of the day (lows that are still 2 ticks better than Friday's close).

(Reuters) - The Federal Reserve will need to continue with its bond-buying program for most of the rest of this year as it tries to push down borrowing costs and an unemployment rate that is still too high, a top Fed official said on Monday.

"The Fed must do what it can to help the economy improve," John Williams, president of the San Francisco Federal Reserve Bank, said in remarks prepared for delivery to the SEMI 2013 Industry Strategy Symposium. "I anticipate that continued purchases of mortgage-backed securities and longer-term Treasury securities will be needed well into the second half of 2013."

Last month, the Fed ramped up asset purchases aimed at spurring growth and pledged to keep interest rates near zero until the unemployment rate drops to 6.5 percent, as long as inflation expectations do not climb above 2.5 percent.

Williams -- who used his vote last year on the Fed's policy-setting panel to support those decisions -- said he sees the U.S. economy growing 2.5 percent this year and a little under 3.5 percent next year. Unemployment, which registered 7.8 percent in December, will likely stay at 7 percent or above through the end of 2014, he said. And with labor costs low, he said he sees inflation likely to come in at 1.5 percent and stay below the Fed's 2 percent goal for the next few years.

Williams' economic forecast shows that he sees the Fed keeping rates near zero into at least 2015, in line with the U.S. central bank's own guidance on low rates.

"We will keep rates low as long as needed to promote recovery and move toward our goals of maximum employment and price stability," Williams said.

The overnight session marked something of a departure from last week's examples as European bond markets stayed relatively less volatile, encouraging US Treasuries to do the same. Japan was out on Holiday, precluding the normal start time for overnight Treasuries, but indirectly proved to be one of the main drivers of the subsequent move lower in yield. Japan is considering a $558 bln bond-buying initiative that would be targeted at foreign debt in order to keep the Yen at export-friendly levels. US Treasuries would be a major component of any eventual program, and with the majority political party backing the move, it's a possibility that markets seem to be taking seriously.

Beyond that the generally calm and well-contained nature of the overnight gains fails to suggest huge, direct "cause and effect" between events and headlines. That's not to say that events aren't contributing to movement, but everything has been more gradual. The fundamental and technical pictures appear balanced and their individual considerations appear to be viewed as more of a package deal, ALLOWING (rather than "suggesting") Treasuries drift calmly to lower yields overnight.

That brought 10yr yields in the door just under 1.84% and MBS at 104-14. Therein lie some clues to the technical picture and the apparent lack of desire to stampede into stronger territory. The first clue is that these levels are the best (or close to the best, considering February MBS Coupons) of the year. Treasuries were just over 1bp lower on January 2nd, but by the morning of January 3rd they'd seen their last hourly closing level below 1.84 until this morning. Additionally, 1.84% would be the lower end of a "zone" of yields that comprises a massively important inflection point for Treasuries (the higher end being the much-discussed 1.865%).

As such, there's a ample justification for things getting less decisive and more "grindy" at current levels. Even as stock markets fall 3-5 points in the S&P right now, bond markets look like they can't be bothered to participate in such things. We'd have to imagine that any further gains from here would either have to be motivated by a significant and unexpected headline, or face increasingly firm resistance as 10's approach the January 2nd lows at 1.8178.

10's are currently at 1.8395 and MBS are up 5 ticks on the day at 104-14 and have traded a narrow range down to 104-11 at their worst. Obama is scheduled for a news conference at 11:15am Eastern (topic unknown) and Bernanke speaks late this afternoon. The scheduled Fed buyback from 10:15-11:00 is the next informative event for bond markets on the otherwise data-free morning and as always, volatility is possible just after 11:00am.

The majority of today's trading in MBS has taken place...

Without much by way of headline cause & effect, bond markets have leaked into their weakest territory of the day with 10yr yields pushing the mid 1.86's and Fannie 3.0's down to 104-10, 4 ticks from their earlier highs.

Both MBS and Treasuries weakened somewhat during Obama's address which centered on the upcoming debt ceiling debate, but several Fed speeches were also out during that time, perhaps giving markets a bit more to consider ahead of Bernanke's speech tonight.

Current levels are probably best-viewed as a sort of line in the sand. At or above these prices, reprice risk is minimal, if it exists at all. It could begin to increase if we dip to 104-09 or below. All that having been said, markets aren't terribly active and trading hasn't been terribly directional--prefering instead to grind sideways at these lows of the day (lows that are still 2 ticks better than Friday's close).

(Reuters) - The Federal Reserve will need to continue with its bond-buying program for most of the rest of this year as it tries to push down borrowing costs and an unemployment rate that is still too high, a top Fed official said on Monday.

"The Fed must do what it can to help the economy improve," John Williams, president of the San Francisco Federal Reserve Bank, said in remarks prepared for delivery to the SEMI 2013 Industry Strategy Symposium. "I anticipate that continued purchases of mortgage-backed securities and longer-term Treasury securities will be needed well into the second half of 2013."

Last month, the Fed ramped up asset purchases aimed at spurring growth and pledged to keep interest rates near zero until the unemployment rate drops to 6.5 percent, as long as inflation expectations do not climb above 2.5 percent.

Williams -- who used his vote last year on the Fed's policy-setting panel to support those decisions -- said he sees the U.S. economy growing 2.5 percent this year and a little under 3.5 percent next year. Unemployment, which registered 7.8 percent in December, will likely stay at 7 percent or above through the end of 2014, he said. And with labor costs low, he said he sees inflation likely to come in at 1.5 percent and stay below the Fed's 2 percent goal for the next few years.

Williams' economic forecast shows that he sees the Fed keeping rates near zero into at least 2015, in line with the U.S. central bank's own guidance on low rates.

"We will keep rates low as long as needed to promote recovery and move toward our goals of maximum employment and price stability," Williams said.

The overnight session marked something of a departure from last week's examples as European bond markets stayed relatively less volatile, encouraging US Treasuries to do the same. Japan was out on Holiday, precluding the normal start time for overnight Treasuries, but indirectly proved to be one of the main drivers of the subsequent move lower in yield. Japan is considering a $558 bln bond-buying initiative that would be targeted at foreign debt in order to keep the Yen at export-friendly levels. US Treasuries would be a major component of any eventual program, and with the majority political party backing the move, it's a possibility that markets seem to be taking seriously.

Beyond that the generally calm and well-contained nature of the overnight gains fails to suggest huge, direct "cause and effect" between events and headlines. That's not to say that events aren't contributing to movement, but everything has been more gradual. The fundamental and technical pictures appear balanced and their individual considerations appear to be viewed as more of a package deal, ALLOWING (rather than "suggesting") Treasuries drift calmly to lower yields overnight.

That brought 10yr yields in the door just under 1.84% and MBS at 104-14. Therein lie some clues to the technical picture and the apparent lack of desire to stampede into stronger territory. The first clue is that these levels are the best (or close to the best, considering February MBS Coupons) of the year. Treasuries were just over 1bp lower on January 2nd, but by the morning of January 3rd they'd seen their last hourly closing level below 1.84 until this morning. Additionally, 1.84% would be the lower end of a "zone" of yields that comprises a massively important inflection point for Treasuries (the higher end being the much-discussed 1.865%).

As such, there's a ample justification for things getting less decisive and more "grindy" at current levels. Even as stock markets fall 3-5 points in the S&P right now, bond markets look like they can't be bothered to participate in such things. We'd have to imagine that any further gains from here would either have to be motivated by a significant and unexpected headline, or face increasingly firm resistance as 10's approach the January 2nd lows at 1.8178.

10's are currently at 1.8395 and MBS are up 5 ticks on the day at 104-14 and have traded a narrow range down to 104-11 at their worst. Obama is scheduled for a news conference at 11:15am Eastern (topic unknown) and Bernanke speaks late this afternoon. The scheduled Fed buyback from 10:15-11:00 is the next informative event for bond markets on the otherwise data-free morning and as always, volatility is possible just after 11:00am.

(Reuters) - The Federal Reserve will need to continue with its bond-buying program for most of the rest of this year as it tries to push down borrowing costs and an unemployment rate that is still too high, a top Fed official said on Monday.

"The Fed must do what it can to help the economy improve," John Williams, president of the San Francisco Federal Reserve Bank, said in remarks prepared for delivery to the SEMI 2013 Industry Strategy Symposium. "I anticipate that continued purchases of mortgage-backed securities and longer-term Treasury securities will be needed well into the second half of 2013."

Last month, the Fed ramped up asset purchases aimed at spurring growth and pledged to keep interest rates near zero until the unemployment rate drops to 6.5 percent, as long as inflation expectations do not climb above 2.5 percent.

Williams -- who used his vote last year on the Fed's policy-setting panel to support those decisions -- said he sees the U.S. economy growing 2.5 percent this year and a little under 3.5 percent next year. Unemployment, which registered 7.8 percent in December, will likely stay at 7 percent or above through the end of 2014, he said. And with labor costs low, he said he sees inflation likely to come in at 1.5 percent and stay below the Fed's 2 percent goal for the next few years.

Williams' economic forecast shows that he sees the Fed keeping rates near zero into at least 2015, in line with the U.S. central bank's own guidance on low rates.

"We will keep rates low as long as needed to promote recovery and move toward our goals of maximum employment and price stability," Williams said.