Good Morning. Happy Fat Tuesday. 

I am off to a slow start this morning and definitely running a bit behind. In that regard I implore you to read two posts if you have not already. While they may be somewhat long, we do feel they will serve as a solid foundation for interest rate explanations yet to come as well as a reset button for those with mixed perceptions and muddled outlooks.

1. Fed's Exit from MBS Program on Course as Planned: this post explores the mortgage rates equation and provides background on the supply/demand technicals that have been so influential over the past year.
2. MBS WEEKLY: Don't Expect to See 2009 Rates in 2010: this commentary shares perspective on the economic environment from a BIG PICTURE viewpoint. The title sums it up.

The general tone in rates market: dont let "in the money" long positions sit on the table for too long, remain defensive of bullish position profits. The 3.625% coupon bearing 10 year Treasury note is weaker to start the week, currently -0-07 at 99-07 yielding 3.719%. This puts 10s on the outside of the range that has provided support so far in 2010.  We are watching for traders to poke and prod at 3.71%...if recovery rally attempts fail...its a sign that weakness is building momentum.

The FN 4.0 is -0-03 at 97-27 yielding 4.206% and the FN 4.5 is -0-02 at 100-27 yielding 4.409%. The secondary market current coupon is 4.389%. "Rate sheet influential" yields are tighter to benchmark TSYs as the week gets underway.

100-24 is our first level of support. Reprices for the worse are more likely if the FN 4.5 dips below 100-20.

Bearish Treasury traders, who have been quite patient with their strategies in 2010, are starting to see their positions pay off. I am not issuing a definitive lock alert at the moment because the market is thinly traded and highly sensitive to headline news, but I would be very defensive of any rate sheet rebate appreciations that are passed along by lenders in the near future. If you're still floating, you should be looking to GUTFLOP a greater percentage of your pipeline. If you are greater than 30 days out, compare the  45/30 day lock price spread against the cost of an extension.  

The dollar is slightly cheaper, commodities are more expensive and stocks are trading in the green.