After the price gains on Friday the interest rate markets have retreated this morning; the 10 yr note yield fell 7 bp on Friday, at 9:15 up 4 bp, 30 yr MBS prices increased 39 bp Friday, this morning -19 bp. Still better than the close last Thursday but the negative perspective is still there. This morning in pre-market trading stock indexes were trading better, however still not above the fair values frm Friday's strong sell-off (-208 DJIA).

The EU running on its tread mill, nothing of substance over the weekend. Interest rates in Spain are higher today. Spain's 10-year yield rose five basis points, or 0.05 percentage point, to 5.42%, the biggest increase since last Monday. The Italian 10-year yield dropped three basis points to 4.74%. An official said the debt agency will "revise and recalibrate the issuances in light of the retail sale's success." The sale attracted bids for 18 billion euros, double the two previous offers combined. The debt agency's review aims "in particular at reducing the amount of short-term issuances," said the official, who declined to be identified. The German 10-year bund yield rose four basis points to 1.63% after climbing 15 basis points last week. Volatility on German bonds was the highest in euro-area markets today.

At 9:30 the DJIA opened -24, NASDAQ unch, S&P -1. The 10 yr note rate at 9:30 1.80% +4 bp; 30 yr MBS price -8 bp after starting down 18 bp at about 8:30.

There are no data points today; the day's activity in the bond and mortgage markets will be driven by the way the stock market trades. Friday saw a huge sell-off in the stock indexes and in turn the bond and mortgage markets rallied nicely. Q3 earnings and forecasts are seen as softer than what traders were expecting. Tonight's Presidential debate, the last of three, may be pivotal as the topic is foreign policy. Going into the debate the most recent polls have the two candidates even.

The recent jump in interest rates has the bellwether 10 yr note playing back and forth around its 200 day average. The third time since late August the note has increased to the average, so far there is support when it gets to that strong longer term technical level. The previous two forays above the 200 have led to yield improvements, around the 1.80% rate the 10 finds support; however each rally off the 200 day average has been higher than the previous rally indicating rallies in the bond and mortgage markets are not as strong, failing to match the preceding rally----not a positive outlook.