Good Morning All.

Stocks, "rate sheet influential" benchmark TSYs, and production MBS coupons extended their directionless trend yesterday. This allowed lenders to keep rate sheet rebate stable near the most aggressive levels of the year.

If you are looking for a rational explanation behind recent range bound price action, it is reflective of growing retail investor uncertainty and continued professional trader cautiousness regarding the effectiveness of the coordinated EU member bailout abroad. Technically, stocks have recovered from their "worst case discount" and are now seeking confirmation that valuations are not overheated.  READ MORE ABOUT THAT PERSPECTIVE

The S&P closed +1.37% at 1171.68, right below the 50 day moving average...which has served as a firm resistance level lately.   The longer stocks fail to breach this barrier the more bearish we will become on the direction of equities in the weeks ahead (short run). Keep an eye on implied volatility for signs of "scared" money.

The sideways sentiment of market participants is more obvious in benchmark Treasuries. The 3.625% coupon bearing 10 yr note is +0-11 at 99-22 yielding 3.535%. After the successful 10yr note auction yesterday, the 2s/10s curve is 2bps flatter at 268bps. Trading volume was low overnight but picked up when yesterday's high yield was tested  this morning...there is a clear cut day trader's mentality moderating the bond market. With that in mind I am not expecting 10s to move much lower than they are now without a selloff in stocks. Other than that, notice the ascending triangle that has formed in 10s. Normally this formation would be bullish as it would imply a breakout to the upside is looming, however because the graph represents yields, and higher yields is a bad thing for mortgage rates, the pattern is bearish. 

 The FN 4.5 is  +0-07 at 101-08 yielding 4.359%. The secondary market current coupon is 3.1bps lower today at 4.333%. The CC yield is +79.9bps/10yrTSY notes and +75.9bps/10yrIRS. Yield spreads are RANGE BOUND!

REPRICES FOR THE BETTER AROUND 101-16

REPRICES FOR THE WORSE AROUND 100-30

The pendulum swings one way and then the other.  Markets are extremely noncommittal with Gold and the Euro being the only assets exhibiting significant momentum. The stock lever continues to be the best indicator of interest rate directionality.