MBS MORNING: Dollar Recovers Losses. Stocks Still Green. Rates Hold Range

After all of yesterday's gains were surrendered in the overnight session, the outer limit of range support has put a stop to rising benchmark yields.

The 3.625% coupon bearing 10 year Treasury note is -0-09 at 99-12 yielding 3.699%.  Today's story is the same as yesterday's: Cheaper prices and higher yields brought out a sizeable real money bargain buyer bid. Add in fast money short covering in low volume and you get a modest bounce off of 3.71% resistance.

Mortgages continue to trade extremely rich vs. benchmark TSYs. The FN 4.0 is currently -0-07 at 97-29 yielding 4.201% and the FN 4.5 is -0-05 at 100-29 yielding 4.401%. The secondary market current coupon is 4.371%. That puts the CC yield at +67.4bps/10 year Treasury notes and +57.8/10yr swap rates. That is super RICH... making it hard to be a buyer of mortgages at the moment.

After losing much ground to the Euro yesterday, the US$ is recovering today. The Dollar Index (DXY) is +0.87% at 80.394. The EUR/US$ pair is well off yesterday's highs...

While better than expected housing and industrial production data are helping keep stocks in the green today (S&P is +0.26%)...the stronger US$ has weighed on commodities and commodities related stock valuations.

The relationship is a bit more obvious when overlaying Crude Oil contracts with the S&P e-mini. Follow the leader....

To celebrate the signing anniversay of the $787 billion American Economic Recovery and Investment Act, the Obama Administration is out on the campaign trail, reminding America that while the economy has likely avoided the worst case scenario (thanks to government interventions), the road to recovery will be long. This is in response to fading taxpayer approval regarding the economic outlook and the Administration's strategies to improve it.  Seems like that disconnect between Wall Street and Main Street that was experienced from March 09 to December 09 may be coming back to bite President Obama. I am not saying that stock rally wasn't warranted, but I am pointing out that stocks may have put people in an overly optimistic state of mind (with help from TARP,  HERA, etc, etc). That mindframe is not warranted...and the Administration is doing it's best to  re-align perspectives of economic reality.

TSYs are wondering aimlessly around the range, MBS traders are handcuffed by rich valuations, and stocks are watching currencies for guidance. All markets have low level of participation. All markets are thinking in the short term. 

Reprice Outlook: a firm break below 100-30 and test of 100-24 would bring on reprices for the worse. If "rate sheet influential" MBS prices rally, a move over 101-06 would raise chances for a reprice for the better (but I wouldnt expect anything widespread).

NEXT EVENT: Fed speak from Plosser at 1245. FOMC Minutes at 2pm