MBS Pricing Snapshot

Cleveland Fed President Sandra Pianalto said the central bank's balance sheet could swell to $4 trillion by year end, arguing that a smaller stable of assets "than many market participants currently envision" could mitigate potential risks.

"Given our limited experience with our asset purchase programs, slowing the pace of purchases could help minimize the potential risks associated with our large and growing balance sheet," she said in prepared remarks to an economic forum.

"Even continuing asset purchases at a reduced pace, and limiting the size of the overall program, would enable the Federal Reserve to continue adding accommodation and providing meaningful support to economic growth and job creation."

By Friday afternoon, Treasuries had retraced about half of their NFP-inspired rally. This apparently set them up to weather the Asian and European sessions with more aplomb today. In an uncharacteristically active overnight session, volatility was uncharacteristically light with 10yr yields capping out at 1.73 versus Friday's latest levels just under 1.72. Not too shabby considering the pace of last weeks move!

Treasuries rallied a bit during Asian hours but the bigger volume and more pronounced weakness arrived with the European session. No news was good news for Italy, with Italian credit spreads leading the way higher for Euros and Treasuries despite flatter Bunds. German debt joined in the move after a stronger Industrial Output report.

But all the while, US Treasuries never made too much of a fuss, and the highest yields of the day just after 8am were met with good buying out of the gate from domestic market participants. This has now resulted in 10's making it back to unchanged levels vs Friday and MBS climbing out of a few ticks of weakness to sit 2 ticks in the green.

10's are currently .0013 lower on the day at 1.7127 and Fannie 3.0s are 2 ticks higher at 104-12. S&P Futures are off their overnight highs and now perfectly in line with Friday's 5pm levels.