Since last Friday through yesterday's close the 10 yr note has declined 25 bp to 1.73%, the big move was in the 30 yr as investors scrambled for yield, it has fallen 52 basis points to 2.80%. In that timeframe the DJIA has dropped 766 points and mortgage rates down 18 basis points. Big moves too quick, markets are overdone at the present levels and should begin to consolidate the declines in a few days of improvement. No reason though to believe at this point that the decline in rates and stock markets is totally over.

Early this morning the 10 yr note was holding a very small improvement while the stock indexes were signaling another weaker open. At 9:00 the 10 yr unchanged, mortgage prices seeing selling with prices down .34 bp frm yesterday's closes; the DJIA futures -87. At 9:30 the DJIA opened -55, the 10 yr -3/32 at 1.73% unch; mortgages are being hit, at 9:30 down 10/32 (.31 bp).

No economic data today.

Nothing from Greece yet as the EU and IMF continue to fiddle. Greece is broke and should default and exit the EU, however there is still work and still efforts to avoid it. If Greece does default and walk away from the EU the fear that other countries may follow is haunting EU and ECB leaders. Bailing out Greece will lead to doing it for Portugal and Ireland and although remote, Italy and Spain . Europe 's big banks are facing huge losses on the bonds they hold from the troubled countries; there is increasing concern that some of the big banks in the region may face the same fate our large banks faced in 2008 when the financial system came to the edge of the cliff.

Goldman Sachs Asset Management Chairman Jim O'Neill was on CNBC this morning saying, global financial system risks repeating the crisis of 2008 if Europe's debt crisis escalates and spreads to the U.S. banking industry. "The fear that it's all dependent on the Fed, together with this mess in Europe, is really getting people more and more worried as this week comes to an end,"....... "The markets have taken the latest FOMC move rather badly, which adds a whole new angle to it. It's the first time since the global rally started in early 2009 that the markets have rejected a Fed easing." ........."As the problem in Europe spreads from Greece to more and more other countries and in particular Italy, the exposure that so many people bank-wise have to Italian debt means the systems can't cope easily with that and it would spread way beyond Europe's borders,"........ "This is why the policy makers need to stop being so sleepy and get on and lead."

The Fed's comments that there is significant risk of continued economic weakness and the never-ending saga in Europe has cast a pall over all financial markets. Although US banks do not have much direct risk with debt in Europe , the fear that there may be another AIG indirect risk is increasing.

The ECB had been increasing rates until recently, concerned with inflation. Tilting at windmills, inflation isn't increasing while the economic outlook is worsening; look for the ECB to cut rates at its meeting next month. Cutting rates is back on the table as is the possibility of extending loans to banks with terms up to 12 months.

Next week Treasury will auction $99B of notes; Tuesday $35B of 2 yrs, Wed $35B of 5 yrs and Thurs $29B of 7 yr notes.

The bond and mortgage markets are momentarily overbought, we expect some pullback and consolidation after the huge moves in the last few days The equity markets equally oversold and will likely find support in the very near term after the heavy selling. Investors and traders are in forced selling mode now as margin calls increase as stocks fall.

So far this morning the equity markets continue their declines, the bond and mortgage markets are not following. The 10 yr and mortgages are weaker so far. Today we expect by the end of the session the key stock indexes will end better. The bond and mortgage markets are being pressured early and will likely continue to be soft. The overall trend though is still good for interest rates but as noted above the rapid decline in rates is unsustainable without some consolidation here. Going into the weekend markets have to contend with the possibility, although remote, that the EU and IMF will agree to more loans for Greece to avoid its defaulting.