Prices of "rate sheet influential" MBS coupons have bounced around a chopatile range this morning. We took a nose dive after 830 data, then started rebuilding off the lows before experiencing another dip back to the session lows. Since the 10AM data we have however been moving higher and actually went flat for the day for a moment before falling back into the red, where we are currently trading.

Trading Flows: Real money accounts will be looking to do some bargain buying at lower dollar price levels. Up in coupon yield spreads are tighter as fuller coupons are getting attention from fast money while "rate sheet influential" coupons are weaker vs. benchmarks as falling prices are keeping originators quiet. (ARE YOU LOCKING?)

The FN 4.5 is -0-03 at 100-13....battling 100-16

PPI STORY

RETAIL SALES STORY

EMPIRE MANUFACTURING STORY

BUSINESS INVENTORIES STORY

So 830 data was bond bearish and 10AM was bond bullish....which is why we change course and started moving higher in price...right?

Actually 10AM data WAS NOT bond bullish...it was more neutral than anything. Yet the benchmark 10 yr note reversed course, rebounding off session price lows (yield highs). Huh?

This is up for interpretation...but our thought is that the business inventory data was more stock bullish than bond bullish. Businesses are continuing to cut costs via reduction of inventory overhang which has been a key factor in the Fed's recovery scenario. Further reduction indicates businesses will have more room to grow in the future or are at least preparing for a long period of slow growth by trimming excess fat from their balance sheets therefore allowing revenues be greater than costs (to put it simply).

Gotta make money somehow...even if it means cutting costs.

Anyway...

This was likely a short cover rally...which demonstrates the bond market's RANGE TRADING BIAS..sell the rumor yesterday, buy the news today! (Im saying that bc bonds sold off for seemingly no reason yesterday).

Here is the range/trend the market is trading...

10 YR TSY CONTRACT: Looking at price action, it appears that a floor may have been built in at 117-04 today. A break below this price point would signal continued weakness down the road.

The S&P is slowly giving back gains, but has a floor built in which is likely stronger than the proposed support level in TSYs. Much of this morning's action took place near 1042, which happens to be the intraday volume weighted average price. Above 1042, 1046 will serve as strong support.A break below 1046 would likely not make it passed 1042 without significant bearish pressure.

Plain and Simple: we expect the S&P to demonstrate RANGE TRADING

Check out how prices have been pulled towards VWAP...

The dollar is getting stronger and oil prices are less expensive.

Data is behind and the market will be mostly watching positions until later this afternoon...

Lenders are paying less for par mortgage rates. We hope you got the opportunity to lock in some of your "Black Wednesday" fence sitters last week!!!

MBS, TSY, LIBOR QUOTES