Its been a busy morning. We have been pacing flows across the curve, monitoring equities, and analyzing currencies and commodities...all while watching Ben Bernanke dodge the political poo being slung at him by the members of the House Government Reform Committee.

Stocks are up, benchmark yields are lower, the dollar is losing gains against the EURO, and NYMEX Crude is getting more expensive.

Stocks are higher led by a rise in oil prices and better earnings at Bed Bath and Beyond (HA). Currencies are somewhat lost in the mess of conflicting data (Jobless Claims, GDP), Oil) and therefore bouncing around a tight range. TSYs are feeling a similar pain and choosing to base trading decisions off of technical indicators.

Volume in the Treasury market has been decent/slightly above average with most of the activity seen in the front end of the yield curve (bills). The 7 year and 10 yr note are trading in slightly below normal volume but the trading environment is essentially two way as we see an equal number of buyers and sellers, longs and shorts. This has generally resulted in a range bound 10 yr yield which has bounced between 3.70 and 3.63 all morning...

Heading into the 7 yr note auction "rate sheet influential" MBS coupons have made noticeable progress in terms of relative value and price action. Yield spreads are a few ticks tighter while the FN 5.0 is near the highs of the day as "down in coupon" is preferred bias (perhaps index buyers adding some duration). Volume is however below normal..which we fully expected to occur.

Whether or not the 7 yr note auction is overbid or underbid...the FN 5.0 and the rest of the "down in coupon" targets will begin to be viewed as RICH...as yield spreads are tighter and dollar prices are near profit taking levels. Stay alert as this is us issuing a selloff watch alert. Remember volume is light...WONDERING WHERE YOUR REPRICES FOR THE BETTER ARE? Primary/secondary spreads are tight...lenders will be slower to pass along gains when market is close to bursting (consolidating gains/profit taking)

Here is a look at previous 7 yr note auctions...

2s vs. 10s: 248bps

MBS QUOTES