Equity markets are holding onto gains after experiencing an unexplained liquidity freeze and record price dip last Thursday. Benchmark interest rates are off their highs of the day but confirmation of the spike in yield appears to be in place after broad based selling early this morning.

The S&P is +3.70% at 1151.95. 1150 is a key test for stocks....one might say a failure to hold gains above this level would be a sign of a shift in BIG PICTURE fundamentals.

Since the initial knee jerk rise in rate levels hit screens overnight, "rate sheet influential" benchmark yields have moved slowly off their intraday yield day highs. The 3.625% coupon bearing 10 year TSY note is -0-30 at 100-25 yielding 3.531%...at its lowest yield levels of the day.  

While this move lower might seem encouraging, price action (lower prices, rising open interest, heavy trading volume) implies more weakness will follow as new money has positioned itself on the short side of the 10yr note.

Trading in the agency MBS market has been sporadic since the early rush of activity seen this morning.  While flows have tapered as the day has progressed, total volume is running slightly above average with  originators dumping nearly  $2bn in new loan supply. This is an expected event as rates start to tick higher...

The FN 4.5 is -0-05 at 101-11 yielding 4.347%. The secondary market current coupon is +2.1bps on the day at 4.313%. The CC yield is +79.3 bps above the 10 yr TSY note and +75.4 bps above the 10 yr interest rate swap. "Rate sheet influential" MBS valuations are off their tightest levels of the day as benchmark yields test the strength of the selloff.

At this point its too early to say if the recovery rally in stocks is sustainable....BUT the speculative theme does favor a move back toward riskier assets. This BIG PICTURE overview combined with intraday price action points toward higher interest rates. GUTFLOP accordingly....

I see Chase as the most aggressively priced C30 mainstream lender, after that it's Wells followed by BoA, then Citi and GMAC.