You've already been brought up to speed on the weakness that followed this AM's brief rally.  After devoting 3+ paragraphs in last week's closing post to a warning of potential weakness this week, this hopefully shouldn't come as too much of a surprise even though I hoped my crystal ball was broken when I saw the green this AM.  So here's what we're looking at at the moment:

Things are not too bad.  After the rather sharp drop around 11:40, we seem to have established a low range defined by 3 bounces at relatively similar price levels.  This is "good stuff" as treasuries have not been so lucky having moved in lock-step with rallying stocks.  So the familiar MO returns: Treasuries suffer, MBS suffer less, spreads tighten.  Here's how it all looks:

This AM's initial rally was on the heels of an update to the NY Fed's website wherein they released operational buying of treasuries this week.  But whatever it was, was apparently no enough to keep tsy's happy.  MBS have come down purely to maintain some sort of contact with the yield curve, and not do to any inherent weakness in the MBS sector.  The counterintuitive response to the Fed buying tsy's may lead to some firmer verbiage or action by the end of this week, but for now, we're right where we thought we would be: giving some of last week's gains back.

We get Housing Starts and a Fed Speaker (Stern) tomorrow followed by more substantive clues from the Fed on Wednesday when the minutes are released at 2pm eastern.  These "minutes" won't have an opportunity to speak to today's trading action, but may cause a momentum shift in fixed income nonetheless.  For today, if you've already been hit with reprices, additional hits are not likely on the way at this point.  If we go below the 99-28 level on 4.0's, we'll reapproach that possibility.