MBS MID-DAY: 11/14/2011

"The Enterprises plan to issue guidance with operational details about the HARP changes to mortgage lenders and servicers by November 15. Since industry participation in HARP is not mandatory, implementation schedules will vary as individual lenders, mortgage insurers and other market participants modify their processes. "

FHFA Release from Oct. 24, 2011

Although the bond markets were closed on Veterans' day, equities and Treasury futures suggested that things could be a bit rough for MBS to start the week today. Equities rallied and Treasury futures sold on news that Italy's senate approved an austerity package and hopes that Italian parliament would seal the deal on Friday. Indeed they did and in the process replaced Prime Minister Berlusconi with the technocrat Mario Monti.

All of the attention paid to Italy between Friday and this morning was expected to climax with this morning's Italian Government Bond issuance. The auction was successful, but less so than it might have been without a hefty dose of ECB buying. It also left spreads to German bunds a bit wider than markets had anticipated based on the decidedly "risk-on" trading seen on Friday.

Bottom line, we're seeing a bit of buyer's remorse among those who bought the hype of Euro-Zone contagion being rapidly on the mend due to leadership changes (Greece's new PM confirmed late last week as well). After rising to 2.13 earlier this morning, 10yr yields are back down to 2.092 (3.5 bps higher than Thursday's last levels and Fannie 3.5 MBS are down 4/32nds to 101-16.

Despite that bounce back from the weakest overnight and early morning levels, challenges remain. Our economic calendar is effectively blank to start the week and just because a portion of Friday's momentum has been reversed doesn't prevent it from bouncing back yet again. Already we've seen stock futures pull bond yields higher from earlier this morning and can definitely imagine a range with more serious support between 2.13 and 2.15 in terms of 10yr yields.