MBS MID-DAY: Quiet Session So Far

After holding support at 3.424, 10yr yields fell to test their best levels of the day at 3.411 but met resistance there again. And it has been those two levels, just over 1 bp apart that have marked the limits of the range so far this morning. Likewise, FNCL 4.5's continue in their tight range between 101-26 and 101-28, currently at 101-27.

U.S. JAN PENDING HOME SALES INDEX -2.8 PCT (CONSENSUS -2.2 PCT) TO 88.9 (-3.2 PCT In DEC) *** JAN PENDING HOME SALES -1.5 PCT FROM JAN 2010.

Following the 9:45am release of the Chicago Purchasing Management Index, volume picked up in the bond market as 10yr notes initially moved higher to 3.424, but did not break earlier highs of 3.427. Yields have since moderated downward and in line with the prevailing levels of the morning in the 3.41's. FNCL 4.5's have been less responsive to data that treasuries with the FNCL 4.5 in a tight range between 101-26 and 101-27.

*** INDEX 71.2 IN FEB (CONSENSUS 67.7) VS 68.8 IN JANUARY *** PURCHASING MGMT NEW ORDERS INDEX 75.9 IN FEB VS 75.7 IN JANUARY *** PURCHASING MANAGEMENT PRICES PAID INDEX 81.2 IN FEB VS 81.7 IN JANUARY *** PMI EMPLOYMENT INDEX 59.8 IN FEB VS 64.1 IN JANUARY *** PURCHASING MANAGEMENT PRODUCTION INDEX 78.2 IN FEB VS 73.7 IN JANUARY *** PURCHASING MANAGEMENT INDEX AT HIGHEST SINCE JULY 1988 *** PURCHASING MANAGEMENT NEW ORDERS INDEX AT HIGHEST SINCE DECEMBER 1983

ST LOUIS FED'S BULLARD-COULD TAKE FIVE TO SEVEN YEARS TO COMPLETE A TRANSITION TO MORE PRIVATE FINANCING FOR HOUSING. In addition, Bullard (non-voter) also commented that the economy should continue to improve in 2011 and that oil prices were not weighing down the recovery. Although Bullard wouldn't oppose further QE if a weakening economy necessitated it, he repeated comments made last week in which he stated the current $600 bln program should be dialed back.

*** OUTLOOK HAS IMPROVED CONSIDERABLY, BUT FED "VERY FAR" FROM ACHIEVING GOALS OF DUAL MANDATE *** - INFLATION EXPECTATIONS WELL ANCHORED, INTEND TO KEEP IT THAT WAY *** - SUSTAINED RISE IN MEDIUM-TERM INFLATION EXPECTATIONS WOULD NOT BE TOLERATED *** - NEED TO SEE SUSTAINED STRONG EMPLOYMENT GROWTH TO BE CERTAIN RECOVERY FIRMLY ESTABLISHED *** - EVEN ADDING 300,000 JOBS A MONTH, WOULD STILL BE CONSIDERABLE LABOR MARKET SLACK AT END-2012 *** - STRENGTHENING OF RECOVERY IS WELCOME AND NOT A REASON TO REVERSE COURSE ON MONETARY POLICY *** - THERE ARE SIGNS THAT CORE INFLATION IS NOW STABILIZING *** - NEED TO BE CAREFUL ABOUT INFLATION EVEN IN AN ENVIRONMENT OF AMPLE SPARE CAPACITY *** - SOME PRESSURE FROM RISING COMMODITY PRICES COULD FEED INTO CORE INFLATION *** - UNEMPLOYMENT RATE THAT IS CONSISTENT WITH NONINFLATIONARY FULL EMPLOYMENT IS POSSIBLY 6-7 PCT *** - WOULD BE UNWISE FOR FED TO OVERREACT TO RECENT COMMODITY PRICE PRESSURES

The trading range for FNCL 4.5's is a few ticks higher this morning than that which prevailed during the last 5 hours on Friday, 101-25 to 101-27 vs. 101-27 to 101-29. 10yr notes rose slightly in yield earlier this morning, but were already back to Friday's 5pm levels of 3.416 when the 830am data hit. That has done little to influence bond-trading so far this morning as treasuries stay under 3.42 and MBS within a tick of the 100-27 mark.

*** PERSONAL SPENDING +0.2 PCT (CONSENSUS +0.4 PCT) VS DEC +0.5 PCT (PREV +0.7 PCT) *** PERSONAL INCOME +1.0 PCT (CONS +0.4 PCT) VS DEC +0.4 PCT (PREV +0.4 PCT) *** CORE PCE PRICE INDEX +0.1 PCT (+0.1230; CONS +0.1 PCT) VS DEC 0.0 PCT (PREV 0.0 PCT) *** OVERALL PCE PRICE INDEX +0.3 PCT (+0.2906) VS DEC +0.3 PCT (PREV +0.3 PCT) *** YEAR-OVER-YEAR PCE PRICE INDEX +1.2 PCT (DEC +1.2 PCT), CORE +0.8 PCT (DEC +0.8 PCT) *** REAL CONSUMER SPENDING -0.1 PCT VS DEC +0.3 PCT (PREV +0.4 PCT) *** PERSONAL SAVING RATE 5.8 PCT VS DEC 5.4 PCT *** MKT-BASED PCE PRICE INDEX +0.3 PCT (DEC +0.3 PCT), CORE +0.1 PCT (DEC 0.0 PCT) *** MKT-BASED YEAR-OVER-YEAR PCE PRICE INDEX +1.3 PCT, CORE +0.8 PCT *** PERSONAL INCOME RISE LARGEST SINCE MAY 2009 (+1.7 PCT); PERSONAL SPENDING WEAKEST SINCE JUNE 2010 (UNCH)