As we near the end of a relatively choppy day, Fannie 3.5's and 4.0's are within a tick of unchanged from yesterday's 5pm levels. Today was interesting and somewhat of a departure from recent sessions in that we saw more of a connection to economic data than usual while we wait on more definitive guidance out of Europe. Basically, it's an "uncertainty reigns supreme" sort of issue, and in that sense, measurable economic data provides some concrete guidance while EU guidance has gone sort of sideways.

Tomorrow's calendar is active. Several economic reports, several Fed speakers and Auction supply announcements. Here's the rundown:
830 - Jobless Claims
10 - Existing Home Sales
10 - Leading Indicators
10 - Philly Fed Survey
1015 - Fed's Bullard
11 - Supply announcement

There's plenty more Fed Speak in the afternoon and evening as well... Lockhart, Pianalto, Tarullo, and Kocherlakota at 12, 1250, 6, and 8pm respectively. There's also the weekly Fed Balance Sheet at 430pm. For a more detailed look at tomorrow's economic events, see the following link:

(Reuters) - The Federal Reserve should consider tying monetary policy to specific economic indicators such as the unemployment rate and inflation, Boston Fed President Eric Rosengren said Wednesday on CNBC.

Rosengren said that if the economy worsens further, the U.S. central bank may need to ease policy further.

The Fed could promise to keep interest rates low until unemployment dips below 7 percent, or inflation rises above 2.5 percent, he said, embracing an idea put forward by Chicago Fed President Charles Evans.

The Fed has already signaled it will keep interest rates near zero until mid-2013, but tying policy to a time-frame may not be as effective as linking it to specific indicators, he said. (Reporting by Ann Saphir)

Stocks are retreating following the release of the Fed's Beige Book. Even though this is a recap of data that was already available, it adds clarity to how the FOMC views the economic outlook. As it turns out, things are "not so good."

While that's no surprise to us, stocks do seem a bit surprised and have sold about 6 pts in S&P's quickly. Fannie 3.5's are 2 ticks up on the day now and 10yr notes are back to unchanged at 2.175. IF (and it's still too early to bank on it) this positivity it maintained or improved upon, reprices for the better should follow. At the very least, reprices for the worse are no longer a threat, and intraday floating in the hopes of a reprice seems like the logical stance.

Summary of Commentary on Current Economic Conditions by Federal Reserve District:

Report: PDF   HTML

Things aren't downright awful, but they're not great either. Prices of Fannie 3.5's broke lower through their most aggressive trendline of the day and are now testing horizontal support at 101-03. That's a fancy way of saying we'd like to see prices bounce off 101-03 and move back higher. They're currently at 101-04, and 10yr yields are 2 bps higher on the day at 2.194.

At least one lender has repriced for the worse and while it's possible that a few other lenders might reprice, it's no guarantee of widespread reprices for the worse. IF, however, 101-03 breaks, likelihood would increase, with "widespread" occurring probably in the high 100's area.