Mortgage backed securities (MBS) prices fell earlier after release of Consumer Price Index (CPI)showed prices rose more than forecast last month, +0.4%, easing concern that inflation will fall below the Fed's preferred level. Fed officials have warned about the risk of deflation, a pattern of prolonged price declines that would hurt profits, make it harder to repay debt, and worsen the recession. The core rate, excluding food and fuel, climbed 0.2% for a second month.

MBS prices have rebounded (rates lower), and the high of the session.

The Fed is scheduled to issue its statement around 1115am pt today, may highlight the increased risks to the economy. Officials have debated how to provide further stimulus to the economy, from purchasing more MBS to buying Treasury securities.

Demand for U.S. debt may wane before the Treasury gives details tomorrow on how much 2yr, 5yr & 7yr notes it will sell next week. Increasing supply will support higher yields and higher mortgage rates too