Consumer Level Inflation Weak. MBS Continue To Improve

Both CPI and Housing Starts flashed this morning.

CPI showed the smallest year-over-year increase, ever.  Here are the details from Reuters:

05:30 17Nov10 -U.S. OCT CPI +0.2 PCT (+0.2322; CONSENSUS +0.3), EXFOOD/ENERGY UNCHANGED (-0.0072; CONS +0.1 PCT)

05:30 17Nov10 -U.S. OCT CPI YEAR-OVER-YEAR +1.2 PCT (CONS +1.3), EXFOOD/ENERGY +0.6 PCT (CONS +0.7 PCT)

05:30 17Nov10 -U.S. OCT UNADJUSTED CPI INDEX 218.71 (CONS 218.920) VS SEPT 218.440

05:30 17Nov10 -U.S. OCT CPI ENERGY +2.6 PCT, GASOLINE +4.6 PCT, NEW VEHICLES -0.2 PCT

05:30 17Nov10 -U.S. OCT CPI FOOD +0.1 PCT, HOUSING +0.1 PCT, OWNERS' EQUIVALENT RENT OF PRIMARY RESIDENCE +0.1 PCT

05:30 17Nov10 -U.S. OCT CORE CPI SEASONALLY ADJUSTED INDEX 221.77 VS SEPT 221.780

05:30 17Nov10 -U.S. OCT REAL EARNINGS ALL PRIVATE WORKERS +0.3 PCT (CONS +0.1) VS SEPT -0.3 PCT (PREV -0.1 PCT)

05:30 17Nov10 -U.S. OCT CORE CPI YEAR-OVER-YEAR SMALLEST INCREASE ON RECORD

And Housing Starts down 11.7% versus a -4.2% in September.  Reuters Details:

05:30 17Nov10 -US OCT HOUSING STARTS -11.7 PCT VS SEPT -4.2 PCT (PREV +0.3 PCT)

05:30 17Nov10 -US OCT HOUSING STARTS 519,000 UNIT RATE (CONSENSUS 600,000) VS SEPT 588,000 (PREV 610,000)

05:30 17Nov10 -US OCT HOUSING PERMITS +0.5 PCT VS SEPT -4.2 PCT (PREV -4.2 PCT)

05:30 17Nov10 -US OCT PERMITS 550,000 UNIT RATE (CONSENSUS 570,000) VS SEPT 547,000 (PREV 547,000)

05:30 17Nov10 -US OCT HOUSING COMPLETIONS -3.2 PCT TO 613,000 UNIT RATE VS SEPT 633,000

05:30 17Nov10 -US OCT HOUSING STARTS RATE LOWEST SINCE APRIL 2009 (477,000 UNITS)

Market reaction, if there even is one, has been favorable so far this AM.  The slight undertone of resignation here because this AM's trading could just as easily be considered an extension of yesterday's rally.  We'll just call it "both" and move on, but not before showing you how it looks!

First, Fannie 4.0's since Monday.

And in treasuries, despite some more volatile movements, yields are clearly trending lower as an extension of yesterday morning's low yields.  This next chart is pretty damn cool by the way...  It shows that the market had a clear INTENTION of finding a bottom (or a top, in this case) and improving from there.  We can see yesterday morning that it TRIED to start those improvements off from opening levels, but once the middle red line was broken and confirmed, yields immediately shot up to fall in line with a downtrend OF THE EXACT SAME SHAPE/PACE (hence, parallel lines), except this time, using the highest yields as the starting point. 

You can almost SEE the thoughts of the market in this chart... 

"Ok guys... things have probably gotten about high enough.  Let's give the old turn-around a shot, eh? "

"Hmmm,  looks like we're starting off about 2.86 today, that won't do...  Let's back this thing up right quick to 2.9 ish and see if we can do it from there..."

"Good job team... a couple nice bounced in between downtrends starting on those two levels."

"Careful team... Careful!  Oh man... you broke the upside trendline... well, I guess we gotta head back up to 2.94 which puts the downtrend in line with yesterday's highs..."

"Hey guys... Just tested the top of this morning's range, and it looks safe for re-entry.  Go Go Go!  But go no lower than this AM's lower trendline!  Go ahead and bounce 4 or 5 times there just to let em know you know your limits..."

And then this morning, the highs and lows fall within that same lower section of the trend lines...  So to me, it's more like this is where yields were predisposed toward going in the first place, OR AT LEAST IN THIS GENERAL DIRECTION.  The weak data made no objection.  We'll see if any other strong motivations present themselves to the bond market as the day progresses...