The week begins at a brisk pace with Personal Income and Spending right off the bat at 830 on Monday morning.Soon after that we'll be preparing for the week's Treasury auction cycle, starting early this time with $35bn 2s at 1pm. 5’s and 7’s arrive in a similarly early fashion, on Tuesday and Wednesday. While the auction cycle will certainly be one of the week’s focal points, there’s an interesting twist to the calendar of events ahead.... Thursday is the last day of the month, the quarter, the half, and of QE2. Adding a few layers of complexity to that situation will be a diverse line-up of Fed Speakers not to mention the ongoing potential for tapebomb news headlines. Other than that there’s nothing earth-shattering on the data docket, we get Consumer Confidence, Pending Home Sales, Chicago PMI, Consumer Sentiment and the ISM Manufacturing Index, justto name a few. We look most forward to seeing Consumer Confidence and ISM as these are early indicators of June data to come. Regarding the markets, investors have displayed been little directional commitment lately. With 10s going out near new YTD yield lows, we'll be looking for a confirmation rally early and often next week.

(Reuters) - Departing Federal Deposit Insurance Corp Chairman Sheila Bair urged regulators to resist pressure to water-down new, more-stringent requirements for systemically important financial institutions. Bair, in final remarks at the National Press Club, bemoaned a culture of "short-termism" that is leading the financial industry and some Republican lawmakers to try to roll back some provisions of the Dodd-Frank financial reform law. Bair said that the FDIC and the Federal Reserve must fully implement Dodd-Frank authorities that allow them to seize and shut down failing large financial institutions. "The FDIC and the Federal Reserve are going to need to stick to their guns and insist that these companies simplify their structure, if necessary, to ensure that they can be resolved without a bailout in some future crisis," said Bair, who leaves office on July 8. The relative calm in the markets and what now seems like a more remote possibility of a crisis will spark debate over the need for these resolution authorities, she said. Regulators must explain that the alternative is to risk another crisis that could someday throw millions of people out of work. She said the short-term thinking that is becoming more pervasive in business and government led to the massive build-up of debt that caused the financial crisis, and is now manifesting itself in complaints by bankers about higher capital requirements. "This is a terrific example of the sort of static, short-term thinking that got us into this mess in the first place," Bair said. "There is a lot of recent research that shows higher capital requirements, in the range that we are talking about, will have a very modest effect of the cost of credit. It will create a large net improvement in long-term economic growth because having more capital lessens the frequency and severity of financial crises." (Reporting by David Lawder; Editing by Tim Dobbyn)

(Reuters) - The Treasury is involved in implementing requirements from the Dodd-Frank Wall Street reform bill to curb risk-taking at financial firms. The legislation called on federal regulators to establish new guidelines for lenders and originators of securitized loans, the types of instruments that fueled the 2007-2009 financial crisis. Critics say the rules would keep potential first-time buyers out of the housing market and drive up borrowing costs because lenders would charge higher rates for loans that do not qualify for the exemption. A comment period on the proposed rule expires on August 1. An unlikely alliance of mortgage and consumer groups -- including the American Bankers Association, the Center for Responsible Lending and the National Community Reinvestment Coalition -- have petitioned for regulators to make changes, and say the proposal could make it more difficult for borrowers to find affordable home loans. Treasury Under Secretary Jeffrey Goldstein said regulators were trying to balance access to credit with strengthening the resiliency of the housing finance system. Risk-retention rules are an "important part" of that effort, he said. "Fundamental flaws in the securitization market and the originate-to-distribute model were a key contributor to the housing bubble that helped precipitate the worst recession since the Great Depression," Goldstein said. He said the final rule will address the major problem seen in the financial crisis: a "lack of alignment of interests between originators and securitizers relative to investors." (Reporting by Margaret Chadbourn; Editing by Ramya Venugopal)

After spending nearly the entire morning in the red, Fannie Mae 4.0 MBS are finally in the green, now a hefty 2/32nds higher than yesterday's close at 101-10. Although our reprice target is 101-14, it's not uncommon to see a few reprices for the better as prices approach target levels, especially on days like today where we know lenders have been a tad defensive over the past few days and where there's a nice stable trend of lows and highs in the charts. With MBS continuing to bounce along at "higher lows," there's enough stability there to hope for a few reprices for the better. 10yr notes are vastly outperforming MBS currently. Prices are up 11/32nds and yields down over 4 bps to 2.8726, as low as they've been since November 2010. Volume is healthy, but not high. Without confirmation from a blazing stock market sell-off, this is just a bit of Friday afternoon "trader's sandbox." Next week's auctions and equities market movements would be needed to confirm a break lower in Treasury yields, and thus, hopefully paving the way for more MBS gains.

The fact that we're seeing even one of the quick-to-reprice lenders make a rate sheet adjustment is evidence of how conservative things have been. Only 6/32nds separate the lowest lows and the highest highs of the day, and the current price of 101-07 on a Fannie 4.0 coupon is a mere 4/32nds off those lows. So while reprices for the better are possible, and even somewhat justified given the relatively stable path of improvement in MBS so far today, we're not yet seeing levels that suggest reprices for the better will be a widespread phenomenon. A bit more is needed for that, both in terms of price improvement and time.