MBS MID-DAY: Sideways to Slightly Weaker

Bond markets are taking 'sideways' to a whole new level at the moment. You'd be hard pressed to find many days with 4 pieces of economic data in the morning with more narrow, more sideways ranges. We'd wondered aloud yesterday if we would get some feedback from markets about what the most important market movers are heading into the end of the week. At least for today, the implication is that the Auction and "The Ben" trump this AM's econ data. Although that's not much of a surprise, it's good to get confirmation. Tomorrow could be more interesting in that regard as there are no auctions or Bernanke testimonies to compete with yet another 4 pieces of econ data. MBS and Treasuries are right where you left them last time with Fannie 4.0's at 100-31 and 10yr notes down 10 ticks on the day in price, up .035 in yield to 2.919. There is one interesting thing happening though: 10yr yields have definitely exhibited supportive bouncing against a ceiling at 2.93. Not even 2 bps lower, there's a bit of an inflection point developing at 2.915, a level that was initially supportive this morning, but has been acting as resistance since it was broken. This little game of ping pong between 2.93 and 2.915 will certainly resolve itself today, but maybe not with conviction until more guidance is available, either from the auction or "the Ben."

(Reuters) - U.S. business inventories rose more than expected in May as sales recorded their first decline in almost a year, a government report showed on Thursday. The Commerce Department said inventories increased 1.0 percent to $1.51 trillion, the highest level since October 2008, after rising by an upwardly revised 1.0 percent in April. Economists polled by Reuters had forecast inventories rising 0.8 percent after a previously reported 0.8 percent increase in April. Inventories are a key component of gross domestic product changes and May's rise suggested restocking would give second-quarter GDP growth a lift. But the increase, which came as business sales dipped 0.1 percent - the biggest fall since last June -- was also confirmation of the sluggish demand that is helping to constrain growth. Sales edged up 0.1 percent in April. May's weak sales pace raised the inventory-to-sales-ratio -- which measures how long it would take to clear shelves at the current sales pace - to 1.28 months from 1.27 months in April. (Reporting by Lucia Mutikani, Editing by Chizu Nomiyama)

The three economic reports this morning (Jobless Claims, PPI, and Retail Sales) have had little effect on trading levels in MBS and Treasuries. Even then, the effects that have been seen are well within the realm of how the market might be trading without economic data. Specifically, 10yr benchmarks are once again on the long term trendline at 2.92+. That's an 11/32 loss on the day in terms of price. But Fannie 4.0's are down only 4/32nds in price to 100-31+. It should be noted that even though we're talking about bond markets being flat, 10yr benchmarks have indeed moved negatively on the econ data, it's just that they stopped moving fairly soon after they started, and right on the trendline they've been dancing around all week (and that they've perfectly bounced on on 4 previous occasions!). If they break higher, there's still short term support overhead at 2.95-ish, but we'd expect any potential breakout to be most informed by today's 2nd round of Congressional testimony by Bernanke as well as the 30yr Bond Auction at 1pm.

(AP) - The nation’s largest banks have submitted plans to fix their troubled mortgage-servicing operations. But those plans will remain confidential, despite calls from some on Capitol Hill to publish the information, a bank regulator said Wednesday. The Office of the Comptroller of the Currency, which regulates national banks, said eight institutions—including Bank of America Corp., J.P. Morgan Chase & Co. Wells Fargo & Co. and Citigroup Inc.—have met a July 13 deadline for submitting detailed plans. The OCC will now review the banks’ action plans, a spokesman said. The four big banks, along with 10 other home-loan servicers, have been under investigation by federal regulators and state officials over breakdowns in procedures for handling foreclosures and requests for loan assistance. Banks, state attorneys general and federal officials are working on a broad settlement of the allegations, which emerged last autumn after several mortgage servicers acknowledged using what are known as robo-signers, who filed documents to foreclose on homeowners without personally verifying the documents’ contents. Each bank is required to hire an independent consultant to conduct a “look back” of all foreclosure proceedings from 2009 and 2010 to evaluate whether they improperly foreclosed on any homeowners. The OCC is establishing a public-complaint process under which borrowers who contend they were harmed by banks’ foreclosure practices can have their complaints reviewed by an independent consultant. The banks are also required to have their consultants conduct reviews of certain segments of borrowers, including military members, for improper foreclosures. An OCC spokesman said the agency “may require changes” to the banks’ plans and said the agency aims to coordinate the banks’ plans with the efforts of state and other federal officials.

Prices at the producer level of finished goods fell 0.4 pct in June after rising 0.2 in May. This brings the year over year unadjusted figure to +7.0. Thank gasoline and heating oil for that, each up over 40%, with Energy at +20% being the only other component in double digits. Both the headline and the year over year readings were better than economists expected. The consensus had been for a 0.2 pct decrease int he headline and a +7.4 pct increase year over year. This is the largest decline in the headline since Feb 2010, but the biggest rise in the year-over-year since July 2009. Gas prices fell at their fastest pace since May 2010. Energy prices declined at their fastest pace since July 2009.

(Reuters) - U.S. retail sales unexpectedly edged up in June as a rebound in receipts from auto dealers offset the biggest drop in gasoline sales in a year, a government report showed on Thursday. Total retail sales rose 0.1 percent, the Commerce Department said, after a dipping 0.1 percent in May. Economists polled by Reuters had forecast sales slipping 0.1 percent. Sales excluding gasoline rebounded 0.3 percent after declining 0.2 percent in May. (Reporting by Lucia Mutikani; Editing by Padraic Cassidy)

Claims fell to 405k for the week ending July 9th from 427k previously. The 4 week moving average fell to 423,250 from 427k in the previous week (that's not a misprint, both the previous headline reading and the moving average were 427k). Continuing claims actually rose last week, from 3.712 mln to 3.675 mln.