Good Morning.

I am a very frustrated Washington Capitals fan as 53 of our 54 shots on net last night were stopped by Montreal's goalie.  We now head back to DC for a one game series against the Canadians. Go big or go home...

My Facebook status illustrates just how annoyed I am today. I couldn't even type at first, all I could do was pound the keyboard like a caveman. On a side note, that is my beautiful girlfriend (I award myself 1 brownie point)

The market failed to provide much motivation for bonds to trade yesterday. In fact, most assets ended the session near the same levels they started. The FN 4.5 was +0-02 at 100-05 yielding 4.488% . The 10 yr note was +0-02 at 98-16 yielding 3.809%. The 2s/10s curve was UNCH at 275bps. S&P futures were -0.20 at 1208. Dow futures closed up a modest 9 points. The Dollar Index was little changed at 81.38. 

All of this occurred in below average volume. It was an apathetically average day...which was not unexpected given recent developments in the regulatory environment, more pin the tail on the donkey re: Greece, the pending FOMC meeting, and $118 billion in soon to be sold Treasury note supply. Matt described the day as "Uninspired".

Treasuries then rallied in the overnight session in modest volume (still below average) as most overseas equity indexes shed points. The SHANGHAI was 2.07% lower, the HANG SENG fell 1.51%, the NIKKEI was however up 0.42%. Selling did spread into Europe after more incoherent noise spewed from the mouths of EU political leadership...all of which serve to further distort fiscal reality abroad. The CAC is currently -1.90%, the DAX is -0.91%, and the FTSE is stinking it up, down 1.47%.

READ ABOUT WHAT REALLY MATTERS IN GREECE.......OH AND HERE IS A STORY ABOUT THE FISCAL SITUATION TOO

Here in the good ol' US of A, we got our first econ data of the week: the S&P/Case-Shiller Home Price Index.

This is how the news comes across my Reuters 3000XTRA:

09:00 27Apr10 -US FEB HOME PRICES IN 20 METRO AREAS  -0.1 PCT SEASONALLY ADJUSTED VS JAN - S&P/CASE-SHILLER
09:00 27Apr10 -US FEB HOME PRICES IN 10 METRO AREAS UP 0.1 PCT SEASONALLY ADJUSTED VS JAN - CASE-SHILLER
09:00 27Apr10 -US FEB 20-METRO AREA HOME PRICES  -0.9 PCT (CONSENSUS -0.3) VS -0.4 PCT IN JAN -S&P/CASE-SHILLER
09:00 27Apr10 -US 20-METRO AREA HOME PRICES +0.6 PCT FEB 2010 (CONSENSUS +1.2 PCT) VS FEB 2009--CASE-SHILLER
09:00 27Apr10 -US HOME PRICES IN 10 METRO AREAS -0.6 PCT IN FEB VS -0.2 PCT IN JAN - S&P/CASE-SHILLER
09:00 27Apr10 -US HOME PRICES IN 10 METROPOLITAN AREAS +1.4 PCT IN FEB 2010 VS FEB 2009 - S&P/CASE-SHILLER

David M. Blitzer, Chairman of the Index Committee at S&P sums up the data for us:

 "These data point to a risk that home prices could decline further before experiencing any sustained gains...While the year-over-year data continued to improve for 18 of the 20 Metropolitan Statistical Areas and the two Composites, this simply confirms that the pace of decline is less severe than a year ago,"

"It is too early to say that the housing market is recovering."

I would like to remind everyone what the S&P told us last week:

"In some recent reports the two series have given conflicting signals, with the seasonally-adjusted series rising month-over-month and the unadjusted series declining. After reviewing the data, the S&P/Case-Shiller Home Price Index Committee believes that, for the present, the unadjusted series is a more reliable indicator and, thus, reports should focus on the year-over-year changes where seasonal shifts are not a factor. Additionally, if monthly changes are considered, the unadjusted series should be used. This note explains the committee’s reasons"

Rate sheet influential TSYs and MBS had no reaction to the data.

The 3.625% coupon bearing 10 year TSY note is +0-13 at 98-29 yielding 3.761%.

When we look at benchmark yields from a wider perspective it's not difficult to see where we are running into resistance...

The "rate sheet influential" FN 4.5 is +0-08 at 100-13 yielding 4.458%. The secondary market current coupon is 4.446%...3.8bps lower than the CC yield at 5pm yesterday afternoon. Yield spreads are however wider...something that is to be expected when TSYs rally.

REMINDER: production MBS coupons and mortgage rates will lag TSY rallies

REPRICES FOR THE BETTER WILL BE BAKED INTO RATE SHEETS THIS MORNING

REPRICES FOR THE WORSE AROUND 100-05

The main events of the day will be:

10:00 ― Using Goldman Sachs as a case study, a Senate Subcommittee hearing will focus on the role of investment banks in contributing to the U.S. economic crisis. The subcommittee, whose Chairman is Sen. Carl Levin, D-Mich., and whose Ranking Republican is Sen. Tom Coburn, R-Okla., has conducted a nearly year and a half investigation into the 2008 financial crisis.

AND...

The $44 billion 2 year note auction...final bids must be submitted by 1pm.

If you are looking for the auction concession you will find it in the flatter shape of the 2s/10s yield curve. Last week traders sold 2yr notes against 10s in hopes that the long end of the yield curve would outperform the short end. This has been the case as benchmark 10 year note yields have risen less than 2yr note yields since the auction was announced last Thursday.  The "auction concession" was discussed IN THIS POST

In order for the 10 yr note to see much more positive progress, we need 2s to fall below 1.00% again. I doubt that will happen before the FOMC releases their policy statement tomorrow at 2:15pm....especially with the auction happening today. In fact I would look for the street to let 2s cheapen a bit more to make their inventory distribution process to go a bit smoother (if they do distribute)...this means we might see 10 year yields on the rise before the day is over. That is unless the Goldman Sachs Senate hearing doesn't force funds into flight to safety havens in the short-end of the curve. Its an odd trading environment today...lots of conflicting views.

Rate sheet rebate is moderately improved this morning.