MBS MID-DAY: 1/4/2011

A trader from Cantor Fitzgerald wrote, "In order to win in 2011, you need to be right about the timing of the economy turning around. In my mind it's still all about the jobs market. Equities and commodities are bulled up. Wall Street research analysts are calling for stocks to be up about 10% in 2011. What a shocker - has Wall St. consensus ever called for a down stock market?"

Today 07:00 - U.S. NOV FACTORY ORDERS +0.7 PCT (CONSENSUS -0.1 PCT) VS OCT -0.7 PCT (PREV -0.9 PCT) Today 07:00 - U.S. NOV DURABLES ORDERS REVISED TO -0.3 PCT FROM -1.3 PCT Today 07:00 - U.S. NOV NONDEFENSE CAP ORDERS EX-AIRCRAFT UNREVISED AT +2.6 PCT Today 07:00 - U.S. NOV FACTORY ORDERS EX-TRANSPORTATION +2.4 PCT VS OCT +0.1 PCT (PREV -0.2 PCT) Today 07:00 - U.S. NOV FACTORY ORDERS EX-DEFENSE +0.3 PCT VS OCT +0.1 PCT

If you click on the 10yr note in your live pricing table and pull up the chart, you can see that movements in yield so far this morning are a perfect extension of the sideways range that began after yesterday AM's rally. To see this range holding steady, in a narrow range, and amidst increasing volume is generally the sort of comment on interest rate volatility that MBS like to see. MBS have taken the opportunity to make a more directional move with respect to yesterday's range. This quietude will be broken either by AM econ data, FOMC minutes, or both.

For the purposes of adjusting your automatic alerts, we'll mark opening levels at 102-22 in 4.5's. First layer of risk centered in a range around 102-16, adjust your specific alert target up or down depending on your past experience with particular lenders (remember of course, you can set multiple alerts if you have more than one lender's habits to contend with on a given day). Next layer of risk at 102-10. On the upside, reprices for the better as 4.5's approach 103-00, and more specifically, could be seen at 102-30 if things seem stable or directionally positive.

Volume in futures was characteristically low leading up to the 8am domestic open. From 5am to 730am, treasury futures had been holding relatively flat while s&p futures rose from 1267 to 1269.6. But beginning at 730, treasury futures began to rally and stock futures to sell as volume increased for both. 10yr note futures are 8 ticks or so better than 5am levels and S&P's have returned to 5am levels at 1267.

Reports from brokers indicate overnight volume in treasuries somewhere just over 2 times the 10 day moving average, putting things back in line with pre-Christmas volume, but still well short of late November/early December's levels. Chalk some of this up to London and Tokyo being back from vacation.