This may well be a situation where we don't see...

MBS and Treasuries are in the same sideways range set by the morning hours.  Heading into 1pm, if MBS had made any more progress, we may well have seen a positive reprice or two.  Positive reprice potential is increasingly unlikely to make an appearance today, though it's not technically impossible.  Negative reprices are still a very small risk, but also looking like a long shot at the moment.

As a bit of a non-market-moving aside, Fed's Bullard was out earlier saying all sorts of silly things like this week's inflation data (which notably was quite weak in the "real wages" area--precisely where it needs to grow to justify higher rates) is a "signal" that inflation data is moving in the right direction.  He also noted that he sees a "neutral" Fed Funds Rate at 4%, which is quite a statement considering the Fed Funds rate dropped precipitously from 19% in 1981 to 0-.25% currently. 

Academics and practitioners agree that we're not likely to ever repeat the mistakes that resulted in 70's-style inflation.  To whatever extent Bullard bases his 4% thoughts on past precedent, it's worth noting that past precedent has been in an ongoing recovery from the late 70's  to this day!  We have no way of knowing what a neutral Fed Funds Rate would be!  Fortunately, markets don't think he does either have learned not to react as much to his outer-spectrum talking points.

Please note: "not much reprice risk" is still...

Bond markets had been leaking into weaker territory most of the morning.  While there's no telling if that trend will resume shortly, it's at least been placed on hold by a much weaker than expected reading on Consumer Sentiment.  Here's the run-down:

• Consumer Sentiment (overall) 81.8 vs 84.5 forecast
• 'Current Conditions' 95.1 vs 99.0 forecast (lowest since November)
• 'Expectations' 73.2 vs 75.0 forecast

There has been almost no reaction in Treasuries or MBS, but if we look through a microscope at the moment to moment activity at 9:55am, trading levels stopped leaking at that point and are now considering where to go next.  10yr yields are up 1.2bps on the day at 2.514 and Fannie 3.5s are down 6 ticks at 102-13

The overnight session was uneventful for Treasuries, with a narrow 2.49-2.51 range.  They reached the domestic session almost perfectly unchanged, and MBS also opened in line with yesterday's close.  Both are losing ground following the stronger-than-expected Housing Starts data.

Housing Starts

• April Housing Starts 1.072 million vs 980k forecast
• March revised to 947k from 946k
• Building Permits 1.080 million vs 1.010 million forecast
• Building Permits highest since June 2008
• Single Family Starts only +0.8, Multifamily +39.6

10yr yields are up to 2.513 from 2.49 before the data.  Fannie 3.5 MBS moved down from 102-18 to 102-13.

This may well be a situation where we don't see...

MBS and Treasuries are in the same sideways range set by the morning hours.  Heading into 1pm, if MBS had made any more progress, we may well have seen a positive reprice or two.  Positive reprice potential is increasingly unlikely to make an appearance today, though it's not technically impossible.  Negative reprices are still a very small risk, but also looking like a long shot at the moment.

As a bit of a non-market-moving aside, Fed's Bullard was out earlier saying all sorts of silly things like this week's inflation data (which notably was quite weak in the "real wages" area--precisely where it needs to grow to justify higher rates) is a "signal" that inflation data is moving in the right direction.  He also noted that he sees a "neutral" Fed Funds Rate at 4%, which is quite a statement considering the Fed Funds rate dropped precipitously from 19% in 1981 to 0-.25% currently. 

Academics and practitioners agree that we're not likely to ever repeat the mistakes that resulted in 70's-style inflation.  To whatever extent Bullard bases his 4% thoughts on past precedent, it's worth noting that past precedent has been in an ongoing recovery from the late 70's  to this day!  We have no way of knowing what a neutral Fed Funds Rate would be!  Fortunately, markets don't think he does either have learned not to react as much to his outer-spectrum talking points.

Please note: "not much reprice risk" is still...

Bond markets had been leaking into weaker territory most of the morning.  While there's no telling if that trend will resume shortly, it's at least been placed on hold by a much weaker than expected reading on Consumer Sentiment.  Here's the run-down:

• Consumer Sentiment (overall) 81.8 vs 84.5 forecast
• 'Current Conditions' 95.1 vs 99.0 forecast (lowest since November)
• 'Expectations' 73.2 vs 75.0 forecast

There has been almost no reaction in Treasuries or MBS, but if we look through a microscope at the moment to moment activity at 9:55am, trading levels stopped leaking at that point and are now considering where to go next.  10yr yields are up 1.2bps on the day at 2.514 and Fannie 3.5s are down 6 ticks at 102-13

The overnight session was uneventful for Treasuries, with a narrow 2.49-2.51 range.  They reached the domestic session almost perfectly unchanged, and MBS also opened in line with yesterday's close.  Both are losing ground following the stronger-than-expected Housing Starts data.

Housing Starts

• April Housing Starts 1.072 million vs 980k forecast
• March revised to 947k from 946k
• Building Permits 1.080 million vs 1.010 million forecast
• Building Permits highest since June 2008
• Single Family Starts only +0.8, Multifamily +39.6

10yr yields are up to 2.513 from 2.49 before the data.  Fannie 3.5 MBS moved down from 102-18 to 102-13.