MBS MID-DAY: Positive Price Action

(Reuters) - The U.S. Treasury on Friday stuck with an August 2 deadline for Congress to approve new borrowing and avoid a default, applying more pressure on lawmakers to break partisan gridlock and reach a budget deal. The Obama administration's estimate of when the U.S. would exhaust its ability to borrow money held steady from its last projection, and came a week after deficit reduction talks between Republicans and Democrats collapsed over tax hikes. Treasury has shifted the date before, prompting some Republicans to question whether the country would actually face a default on its debt if the ceiling were not raised in time. The White House wants a deal even sooner. Democratic officials said a deal needs to be in place by July 22 to give Congress enough time to pass it, though some budget experts question whether that would even yield enough time. Fears of a default, which could disrupt everything from debt payments to retirement benefits, have been rising after Republicans walked out of budget negotiations led by Vice President Joe Biden last week. The political impasse has driven credit rating agencies to warn about possible downgrades to the United States's top-notch AAA credit rating. A U.S. default could spark a new financial crisis. Economists say interest rates could spike, equity markets might plunge along with the value of the dollar, and the country could fall back into a recession.

Volume and volatility are mere shadows of their former selves so far today. Only about half the average volume has been seen, and none of it has done much to move bond markets this morning. To put that in a clearer context, the biggest move in one direction for MBS has been 3/32nds versus three times that on Friday (9/32nds down in about 6 minutes during Consumer Sentiment and ISM). Benchmark Treasuries are cutting a similarly narrow range, limited to just over 1bp in either direction. Additionally, both are near their best levels of the day with Fannie 4.0's up 10 ticks at 100-04 and 10yr yields down almost 5 bps at 3.134. MBS have bumped their heads on 100-04 on several occasions already today, so we'd be looking for a serious break there before seriously considering the possibility of reprices.

(Reuters) - U.S. consumer bankruptcies fell 8 percent in the first half of 2011 from the same period last year as households cut debt and the economy recovered, according to data released on Tuesday. The number of U.S. consumer bankruptcy filings fell to 709,303 in the first six months of 2011 from 770,117 last year, according to a report by the American Bankruptcy Institute. For June, consumer bankruptcies were down 5 percent at 119,768, from 126,270 a year ago, the data showed. "The drop in bankruptcies for the first half of the year shows the continued efforts of consumers to reduce their household debt and the overall pull back in consumer credit," ABI Executive Director Samuel J. Gerdano said. The report said the U.S. economy has continued its sluggish recovery from the deep 2007-2009 recession. The U.S. unemployment rate at the beginning of 2011 had dropped to 9 percent from 9.7 percent at the start of 2010. (Reporting by Tom Hals, editing by Maureen Bavdek)

Reuters) - New orders received by U.S. factories bounced back in May, boosted by demand for transportation equipment and a range of other products, a government report showed on Tuesday. The Commerce Department said orders for manufactured goods rose 0.8 percent after revised 0.9 percent fall in April. Economists polled by Reuters had forecast factory orders rebounding 1.0 percent in May after a previously reported 1.2 percent fall. (Reporting by Lucia Mutikani, Editing by Chizu Nomiyama)

Benchmark 10yr notes and MBS are both back in their pre-econ-data ranges from Friday morning after gaining in the Asian/European sessions. Contributing to the recovery, Moody's reported that it had identified previously unreported bank loans to local governments in China, saying that the Chinese banking system's non-performing loans could be 3-4% higher than previously thought. The European news was not surprisingly centered on Greece after S&P warned that it would consider the French rollover of Greece's privately held debt as a default. With no economic data on tap until 10am to provide any counterpoint to the bond-bullish overnight news, 10yr notes are down to 3.14 after reaching nearly 3.22 on Friday. FNMA 4.0 MBS are nearly to their highest levels from Friday morning, currently at 100-03. They hit 99-19 at their worst last week. The only major economic report of the day is Durable Goods at 10am. Rate sheets have been and should continue to be coming out much improved over Friday's last offerings as long as current levels hold.