Stocks have rallied immensely, with the S&P up over 25 points in 30 minutes. This has exerted a bit of pressure on Treasuries which are in turn exerting a bit of pressure on MBS. By the time that telephone game is done, MBS aren't hurting nearly as bad as the stock rally would suggest, but we are near the lows of the day at 102-23 on Fannie 3.5's. Reprices for the worse are once again a moderate risk.

This is one of those less common situations in the MBS market where some lenders might reprice for the better and some could reprice for the worse.

Prices have been stable enough for long enough now (even slightly positive) that a few of the lenders who either came out with conservative pricing or who repriced for the worse might offer a small reprice for the better.

But we also wouldn't rule out the possibility of a latent reprice for the worse, although it's getting a bit late for that now. The only other potential surprise could come from a pipeline control reprice.

Although Treasuries and MBS got moderately weaker after Bernanke's testimony on the Economic Outlook and Monetary Policy, his speech is not the driver of the weakness--at least not directly.

Bond markets were at their best levels of the morning just before 10am when stock markets had opened and moved lower. And that's the gist essentially: bond strength on stock weakness. So when stocks found some support in the 1070's, bonds and MBS lost some ground.

Fannie 3.5's are down 17 ticks on the day at 102-20
10yr yields are up 8 bps at 1.82.

Right now, it's all about the dance between stocks and bonds. The lever has been exceedingly connected of late and if stocks manage to break their highs of the morning, more pain could be in store for bond markets.

But keep this in mind: ONLY NOW are 10yr yields beginning to creep back into the BULLISH end of the trend channel they've been in since the first part of August. It would be UNLIKELY for 10yr yields to close lower than that trend channel for two days in a row.