After rising about 3.5% last week, stock markets are hesitant to continue moving higher as the week begins while interest rates are mostly unchanged. One hour before Monday’s opening bell, Dow futures are down 21 points to 10,365 and S&P 500 futures are down 2.50 points to 1,098.00. The 2-year Treasury note is UNCH at 100-02, up 0.8bps to 0.596% and the benchmark 10-year Treasury note is +0-03 at 104-10, -0.9bps at 2.992%. The September Delivery Fannie Mae 4.0 MBS coupon is +0-01 at 101-12 while the September Delivery Fannie Mae 4.5 MBS coupon is +0-00 at 103-18.

August is the slowest month of the year in financial markets . Many participants have surrendered their Blackberry(s) and will be detached from reality, off and on, until school goes back in session at the end of the summer. Heck, even those who've just returned from their "detachment" will be somewhat "zoned out" as they play catch up. Don't forget this when you see choppy price behavior in the day's ahead. Major decision makers are stepping "OUT OF OFFICE" and markets will be left to run wild in whatever direction is least resistant.

Rate sheet influential mortgage-backs are experiencing some localized weakness as stocks rally and swaps spreads widen. Nominally, yield spreads have been wider all morning but price levels were still pushing new records because Treasuries were catching a bid, but the poo hit the fan a few minutes ago and prices plummeted. We're still in the green though...just off the session highs. The September FNCL 4.0 is +0-03 at 101+30. The FNCL 4.5 is UNCH at 104-02. The secondary market current coupon is -1.6bps at 3.679. Yield spreads are at the wides of the week.

After better than expected New Home Sales data flashed, the risk trade extended its recent positive progress and benchmark interest rates are higher... S&P futures just printed a new one month high, currently +8.50 at 1109. Volume rose when S&P futures fell to 1098 support but participation has tapered off into the rally. Open interest does not reflect an increase in new long positions as much as it does forced buying in the form of short covering. Nonetheless S&Ps are holding positive progress above 1100 while the pain trade continues to play out for short sellers.

Equity futures are flat this morning ahead of the durable goods report for June and the Federal Reserve’s Beige Book, a summary of regional economies across the country. Ninety minutes before the opening bell, Dow futures are trading 1 point higher at 10,495 and S&P 500 futures are up 0.25 points to 1111.25. The 2-year Treasury note is UNCH at 99-31 yielding 0.645%. The benchmark 10-year note is +0-04 at 103-29 yielding 3.036%. The 2s/10s curve is 2bps flatter at 239bps. The September Delivery FNCL 4.0 is +0-03 at 101-15. The FNCL 4.5 is +0-03 at 103-25.