Bond markets are trying to find their footing this morning after yesterday's weakness extended through the overnight session. News that the ECB may go one step further than yesterday's bond-swap deal and actually allow Greek bonds to be written down in a similar fashion to the upcoming private sector haircuts prompted the move higher in yield this morning and lower in price . 10's approached 2.04 and Fannie 3.5 MBS 103-03 before bouncing a bit in recent moments.

The markets's focus is clearly on Europe. This morning's Consumer Price Index data was a relative non-event, as expected, and is certainly not motivating any of the current price action. Volume is following European headlines and European trading. To wit, the first pop higher about an hour before the domestic open came on the announcement that Italy's PM Monti, Greece's PM Papademos, and Angela Merkel were optimistic about a solution being reached on Monday after a 3-way conference call earlier this morning. Admittedly, that's lackluster news. The more meaningful surge in volume came shortly thereafter on the ECB news, and caused another quick 3bps rise in 10yr yields.

If the ECB allows Greek debt at central banks in EU states to be written down, it equates to another chunk of cash that can be considered when determining Greece's fate on Monday. It could help keep private sector haircuts in a more palatable range. In short, it just adds to the optimism that things can "get done" on Monday.

Now... More than a few market participants are saying "fool me once...," ourselves included. But current developments still have to be respected.

read the full article and the the charts here:

• RTRS- CPI +0.2 PCT (+0.2079; CONSENSUS +0.3 PCT), EXFOOD/ENERGY +0.2 PCT (+0.2183; CONS +0.2 PCT)
• RTRS- CPI YEAR-OVER-YEAR +2.9 PCT (CONS +2.9 PCT), EXFOOD/ENERGY +2.3 PCT (CONS +2.2 PCT)
• RTRS- UNADJUSTED CPI INDEX 226.665 (CONS 226.60) VS DEC 225.672
• RTRS- CPI ENERGY +0.2 PCT, GASOLINE +0.9 PCT, NEW VEHICLES 0.0 PCT
• RTRS- CPI FOOD +0.2 PCT, HOUSING +0.1 PCT, OWNERS' EQUIVALENT RENT OF PRIMARY RESIDENCE +0.2 PCT
• RTRS- CORE CPI SEASONALLY ADJUSTED INDEX 227.684 VS DEC 227.188
• RTRS- REAL EARNINGS ALL PRIVATE WORKERS 0.0 PCT (CONS +0.1 PCT) VS DEC +0.4 PCT (PREV +0.5 PCT)

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in January on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.9 percent before seasonal adjustment.

The indexes for food, energy, and all items less food and energy all rose in January, each increasing 0.2 percent. Within the food group, the index for food away from home increased while the index for food at home was unchanged; within the energy group the gasoline index increased while the index for household energy declined.

Within all items less food and energy, the apparel index rose sharply, and the indexes for shelter, recreation, medical care, and tobacco increased as well. The indexes for used cars and trucks and for airline fares both declined, while the new vehicles index was unchanged.

The all items index has risen 2.9 percent over the last 12 months, a slight decrease from last month's 3.0 percent figure. The index for energy has risen 6.1 percent over the last year and the food index 4.4 percent; both figures are slight declines from last month. The index for all items less food and energy has risen 2.3 percent, its largest 12-month increase since September 2008.