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Bonds and mortgages got spanked hard last Friday, rocked around all week...again with the market given back all the week's gains and then some on the shorter dated stuff. The data, the Bernanke, the technical, all played into the beat down and got some added help as markets in general decided to put risk back into play, consequences be darned. The 10-yr was able to take out a batch of key levels fairly easily with thinned Fri in Aug volume not helping any while traders reported mortgage players were not in as a presence.

This morning, after the strong selling on Friday, the bond market is opening better with those key equity market indexes trading weaker after their strong rally Friday. Churning, churning; that is what we have in the equity markets. The key indexes are trendless, every time it looks like a trend will develop it is thwarted by uncertainty whether traders to sell or buy. The bond market is running out of steam with the 10 yr note finding resistance at the 2.50% area. Bernanke last Friday continued his windmill tilting; comments that the economy is continuing to improve but very slowly; that the Fed stands ready to do more quantative easing if necessary (using unconventional means). The Fed is relatively helpless now; the Fed can talk the talk, walk the walk but it is out of bullets. How many times? The US economy is stuck and won't loosen until the housing markets stabilize and job security increases; neither is on the horizon until at least the end of 2011.

July personal income and spending was out at 8:30; income up 0.2% in line with estimates, spending was slightly better, up 0.4%. Not any noticeable reaction to the report. At 9:00 the DJIA -37, the 10 yr note +16/32 (-46/32 on Friday) at 2.59% +7 BPs (+17 BPs on Friday). At 9:30 this morning mortgage prices were +8/32 (.25 bp) after falling 18/32 (.56 bp) on Friday. The DJIA opened at 9:30 -30, 10 yr +15/32.

This week has a lot on the plate of data culminating on Friday with the big bopper, the August employment report. Reports on the August manufacturing and services sectors, weekly jobless claims and July pending home sales.

This Week's Economic Calendar:
Tuesday;
9:00 am Case/Shiller 20 City index (+3.1%)
9:45 am Chicago Purchasing Mgrs index (57.0 frm 62.3
10:00 am Aug Consumer confidence index (50.0 frm 50.4)
2:00 pm FOMC minutes from 8/11 meeting
Wednesday;
8:15 am ADP Aug private sector job estimate +13K
10:00 am July Construction spending (-0.7%)
ISM Manufacturing index (52.9 frm 55.5 in July
2:00 pm Aug auto and truck sales (N/A)
Thursday;
8:30 weekly jobless claims (+2K to 475K)
Q2 productivity revision (-1.7% frm -0.9% initially)
Q2 unit labor costs revision ( +1.1% frm +0.2% initially)
10:00 July pending home sales (unch frm June which were down -2.6%)
Friday;
8:30 am August unemployment at 9.6% +0.1%)
Non- farm jobs -120K but private sector jobs +44K)
10:00 am August ISM Services sector index (53.0 frm 54.3)

Last Friday's strong selling should not be ignored; the magnitude of the price declines and yield increases in treasuries suggests investors and traders are increasingly fearful that long term rates may struggle to decline more from their recent lows (2.48% on the 10 yr) and mortgage rates at their recent lows. However; there is still no longer term evidence that rates will increase with the economy struggling just to hold on. This week will likely see continued volatility in the financial markets (stocks, bonds and mortgages). Short staffed street and Fed statements produced second largest %change this year on the 10 yr note Friday.

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