MBS MID-DAY: 1/14/2011

Following the 9:55am consumer sentiment report, MBS FNCL 4.5's are holding near highs at 102-25 while benchmark 10's continue to grind into their own range-inspired resistance at lows in the 3.26's. Reprices for the better have been reported, but the market is showing itself to be extremely stubborn in signaling a broader shift and moving outside the January trend channel in 10's.

This is it... This is about as low as the 10yr note can be and still be considered in it's recent range. In fact, the range itself is broken at 3.28-ish. But it's been a noisy one under that. Furthermore, this assumes we're dealing with a horizontal range! It's now beginning to look like much more of a slightly sloped trend channel that's allowing for today's progressively lower yields at 3.25+'s but still providing resistance being a bullish boundary. We'll see how the rest of the day plays out, but so far, still frustratingly apathetic as far as the larger scale breakouts we'd like to see. Of course, we'll take the gains though! 4.5's are at 102-25 currently.

Source: Reuters

Following Industrial Production Data, we saw a nice directional move lower in benchmark yields and up in MBS prices. 3.29 quickly became 3.27, but so far, the story ends there. Is IP data on an auction week worth an immediate 2bp slight in 10's? and with increased volume? Of course not... But if it constitutes one of the last "gates" that needs to drop before a bullish leaning can break out, then you bet it does. 955am could be more exciting.

U.S. DEC CAPACITY USE RATE 76.0 PCT (CONS 75.6 PCT) VS NOV 75.4 PCT (PREV 75.2 PCT)

The much anticipated December Retail Sales report failed to match economist expectations and CPI data was "on the screws". These headlines were unable to motivate bond traders in either direction. The market's reaction was muted. The 10 year note is holding steady between 3.30 and 3.32%. Mortgages are trading lower and slightly wider so far. The FNCL 4.5 is -3/32 at 102-18. We continue to search for signs of life in the bond market. The range trade persists....

U.S. DEC CPI YEAR-OVER-YEAR +1.5 PCT (CONS +1.3 PCT), EXFOOD/ENERGY +0.8 PCT (CONS +0.8 PCT) ||| U.S. DEC CPI YEAR-OVER-YEAR +1.5 PCT (CONS +1.3 PCT), EXFOOD/ENERGY +0.8 PCT (CONS +0.8 PCT) ||| U.S. DEC UNADJUSTED CPI INDEX 219.179 (CONS 219.022) VS NOV 218.803 ||| U.S. DEC CPI ENERGY +4.6 PCT, GASOLINE +8.5 PCT, NEW VEHICLES UNCH ||| U.S. DEC CPI FOOD +0.1 PCT, HOUSING +0.2 PCT, OWNERS' EQUIVALENT RENT OF PRIMARY RESIDENCE +0.1 PCT ||| U.S. DEC CORE CPI SEASONALLY ADJUSTED INDEX 222.187 VS NOV 221.982 ||| U.S. DEC REAL EARNINGS ALL PRIVATE WORKERS -0.4 PCT (CONS -0.2 PCT) VS NOV -0.1 PCT (PREV -0.1 PCT) ||| U.S. DEC CPI RISE LARGEST SINCE JUNE 2009 (+0.7 PCT)

US DEC RETAIL SALES EX-AUTOS +0.5 PCT (CONS +0.7 PCT) VS NOV +1.0 PCT (PREV +1.2 PCT) ||| US DEC RETAIL SALES EX-AUTOS +0.5 PCT (CONS +0.7 PCT) VS NOV +1.0 PCT (PREV +1.2 PCT) ||| US DEC RETAIL SALES EX-GASOLINE +0.5 PCT VS NOV +0.5 PCT ||| US DEC RETAIL SALES EX-AUTOS/GAS/BUILDING MATERIALS +0.2 PCT VS NOV +0.8 PCT ||| US DEC GASOLINE SALES +1.6 PCT VS NOV +3.8 PCT ||| US DEC CARS/PARTS SALES +1.1 PCT VS NOV +0.2 PCT ||| US RETAIL SALES +6.6 PCT IN 2010 VS. -6.5 PCT IN 2009 (Source: Reuters)

(Reuters) - World stocks extended losses and commodities remained under pressure on Friday after China's move to raise banks' reserve requirements fanned concerns that the key world growth engine may lose steam. The euro fell back from one-month highs against the dollar after earlier extending steep gains seen the previous day after European Central Bank chief Jean-Claude Trichet warned on inflation. Futures on the U.S. S&P 500 and the Dow Jones industrial average slipped around 0.4 percent, despite strong quarterly results from lender JPMorgan.

(Reuters) - China's central bank raised lenders' required reserves on Friday for the fourth time in just over two months, stepping up the fight against inflation that it has vowed will be a top priority for the year. By forcing banks to lock up more cash with the central bank, Beijing hopes to drain excess money from the economy and tame rising prices, which it worries may stir social unrest. The move, well anticipated after China's top leaders planted the task of taming inflation at the top of their agenda, underscores the central bank shift to "prudent" monetary policy in December, from its previous "moderately loose" stance.

(Reuters) - JPMorgan Chase & Co reported higher-than-expected quarterly earnings, helped by narrowing losses on bad loans that allowed it to release $2 billion in reserves. JPMorgan, the first of the major U.S. banks to report earnings for the fourth quarter, said profit increased to $4.8 billion, or $1.12 a share, from $3.3 billion, or 74 cents a share, a year earlier. Analysts on average expected $1 a share, according to Thomson Reuters I/B/E/S. Fewer bad loans meant the bank could reduce loan loss reserves for its credit card unit by $2 billion, or 30 cents a share after tax.