• FN 4.5's currently unchanged on the day at 101-02. (4 ticks off highs)
• 101-02 is the major resistance point from yesterday.
• Treasuries much worse off with 10yr down 7 ticks, pushing yield up to 3.69
• Chalk afternoon signs of life in stocks up to Fed's Janet Yellen who said, among other things:
   
  • Unemployment high for years, though labor market stabilizing
  • NFP might have been positive in Feb if it weren't for the weather
  • Inflation could DECLINE in 2010, 2011
  • Fed's policy is appropriate - not overly accomodative
  • said inflation fears are misguided because they rely heavily on the notion of big deficits, but if big deficits are raising ASSET prices, it's not a "goods-level" inflation that has everyone so panicked
    
  • As long as fed retains independence, it can restrain inflation.
  • Asset sales will eventually reduce size of Fed Balance sheet.
     

 
As far as the long end is concerned, it doesn't seem that Yellen's inflation-dismissive words are going over too well.  Volume is too low to draw any major conclusion as to whether or not the stock rally or future inflation fears themselves are driving the long end higher in yield.  But as you can see, MBS are fighting off the urge to sell, partly because, well, there just aren't any sellers, and partly perhaps, due to her focus on "lower rates needed to stimulate recovery" and a tacit nod to mortgage rates. 

Whatever the case, MBS are holding up quite well and the Yellen speech gives us some long overdue drama that even today's 2yr auction failed to deliver.  Granted, nothing very dramatic is happening, but the back up in tsy yields always increases the vigilance with which we must pay attention to MBS for any signs of following, ESPECIALLY with spreads of MBS yields to Tsy yields already so historically tight.  Reprices for the worse are not out of the question among jumpy lenders, and that becomes truer and truer the more we go below 101-02 (if we do so in the first place!)