MBS MID-DAY: Sideways Again

(Reuters) - Republican presidential candidate Rick Perry on Wednesday called for greater transparency from the Federal Reserve to show that the U.S. central bank was not engaging in "improper" actions. "They should open their books up. They should be transparent so that the people of the United States know what they are doing," the Texas governor said at a breakfast in Bedford, New Hampshire. "It would go a long way to showing if their had been activities that had been improper," Perry said. It was a fresh attack on the Fed from Texas Governor Perry, who created a stir on Monday when he said he would consider it "treasonous" if Fed Chairman Ben Bernanke "prints more money between now and the election" in November 2012. But Perry's tone was not as harsh on Wednesday. He said he was one of a number of Republicans who have questioned the Fed's transparency. (Reporting by Ros Krasny; Editing by Eric Beech)

(Reuters) - Applications for U.S. home mortgage refinancing rose last week as interest rates eased further, but demand for purchase applications fell amid economic uncertainty, an industry group said on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 4.1 percent in the week ended Aug. 12. The MBA's seasonally adjusted index of refinancing applications jumped 8.0 percent to their highest level since early November, but the gauge of loan requests for home purchases slumped 9.1 percent. Wild swings in the stock market last week and worries over the strength of the economy likely made potential homebuyers hesitant and drove purchase application activity down, Mike Fratantoni, MBA's vice president of research and economics, said in a statement. The increased uncertainty came on the heels of the downgrade of the United States' credit rating by Standard & Poor's. Refinancing accounted for 78.8 percent of total applications, up from 75.6 percent the week before. Fixed 30-year mortgage rates averaged 4.32 percent, down from 4.37 percent the week before. (Reporting by Leah Schnurr; Editing by Leslie Adler)

Yet another relatively calm overnight session come and gone, domestic markets had only PPI to consider this morning. To say it was shrugged off would be an understatement. In fact, bond markets have improved despite the slightly worse than expected inflation reading. Fannie 4.0's are currently unchanged on the day at 104-10. The interesting game to watch right now is at 2.25 in 10yr notes. That's the technical level that needs to hold up a a supportive ceiling today in order to confirm a shift from "sideways to improving." Dallas Fed Pres Fisher takes the mic at 120pm, but that's about it as far as the economic calendar goes. If 3.25 continues to hold and Fannie 4.0's don't dip below 104-08, well that'd just be mighty fine as far as the morning's rate sheet outlook is concerned. More specifically, sheets would not be delayed much and you might even see some improvements despite flat MBS.

(Reuters) - U.S. core producer prices rose at their fastest pace in six months in July, pushed up by higher tobacco and light truck costs, according to a government report on Wednesday that could stoke inflation fears. The Labor Department said its seasonally adjusted index for prices paid at the farm and factory gate, excluding food and energy, rose 0.4 percent - the largest increase since January - after rising 0.3 percent in June. That compared with economists' expectations for a 0.2 percent rise. Overall prices received by producers rose 0.2 percent after falling 0.4 percent in June, above economists' expectations for a 0.1 percent gain. The Federal Reserve last week promised to keep interest rates near zero for the next two years to stimulate growth, saying the outlook for inflation over the medium-term was subdued. A spike in food and energy prices pushed up inflation early this year, but weak economic growth and high unemployment kept underlying price pressures contained. In the 12 months to July, core producer prices increased 2.5 percent, the largest increase since June 2009. Tobacco accounted for almost a quarter of the rise in the monthly core PPI rate, with light motor trucks and pharmaceuticals also making significant contributions. Light truck prices increased 1 percent, while tobacco surged 2.8 percent, the largest increase since March 2009. Overall producer prices were bumped up by food costs, which rose 0.6 percent as potatoes recorded their biggest increase in almost a year. Gasoline prices, however, fell 2.8 percent. In the 12 months to July, producer prices rose 7.2 percent after increasing 7.0 percent the prior month. The rise was above economists' expectations for a 7.0 percent advance. (Reporting by Lucia Mutikani; Editing by Neil Stempleman)