MBS MID-DAY: 9/8/2011

MBS and Treasuries came in the door in better territory than yesterday's latest levels. The overnight session was fairly uneventful and volume fairly low. We get the impression that markets are mostly waiting for Bernanke and Obama later today. Case in point, the highest concentration of economic data of the week, which occurred at 830am this morning with the simultaneous release of Jobless Claims and International Trade, failed to garner much of a market reaction. There was a decent uptick in volume, but nothing spectacular and no discernible movement until closer to 9am, at which point one has to wonder whether its delayed reaction to the data or current reaction to several comments from ECB's Trichet (Europe is important these days, folks care), including his assertion that governments must respect the stability and growth pact re: Greece effectively allaying fears Greece would be expelled from the EU. That was mildly stock-bullish and bond-negative. After some more chop-chop, MBS are a few ticks better than unchanged although bond markets look to be under pressure from a bullish domestic stock market open. After trading lower overnight, S&P's are back to their closing levels (also yesterday's highs). This brings 10yr yields up from 1.98 this morning to 2.017 currently. Fannie 3.5's are 2 ticks higher at 101-14 and 4.0's 3 ticks higher at 104-10. Some rate sheets are waiting out the volatility, but those that are out are generally improved from yesterday.

(Reuters) - Greece is not at risk of leaving the euro zone and will resume talks with EU, IMF and ECB inspectors next week as planned, governemnt spokesman Ilias Mosialos told reporters on Thursday. "There is no threat of Greece exiting the euro zone," Mosialos said. "Talks with the troika continue next week, to examine structural changes and budgets for 2011 and 2012." Anger at Greece's failure to meet fiscal targets that are a condition for its international bailout is nearing breaking point in Berlin and other European capitals, with senior politicians now talking openly about the possibility of Athens exiting the euro zone. (Reporting by Renee Maltezou; Writing by Ingrid Melander)

(Reuters) - The U.S. trade deficit narrowed much more than expected in July as strong Latin American demand helped push exports to a new record and imports fell slightly, a government report showed on Thursday. The trade gap totaled $44.8 billion, 13.1 percent less than in June and well below a consensus forecast of $51.0 billion from Wall Street analysts surveyed before the report. It was the biggest month-to-month percentage drop in the deficit since February 2009. U.S. exports rose 3.6 percent to a record $178.0 billion, driven by record shipments to countries in South and Central America and higher demand from China and major oil producers. Records were also set for two large categories, goods and services, as well as for capital goods and autos. (Reporting by Doug Palmer, Editing by Chizu Nomiyama)

Reuters) - New U.S. jobless claims rose unexpectedly last week, further evidence of a weak labor market just hours before President Barack Obama delivers a major address to Congress on the issue. Applications for unemployment benefits rose to 414,000 in the week ending Sept. 3 from an upwardly revised 412,000 the prior week, the Labor Department said on Thursday. Wall Street analysts had been looking for a dip to 405,000. Excluding one week in early August, claims have held above 400,000 since early April. The Labor Department said there was no discernible effect from recent hurricanes and storms on the national figures this week. The four-week moving average of claims, which smooths out volatility, rose to 414,750 from 411,000 the prior week. Continuing claims eased to 3.72 million from 3.75 million. The number of total recipients on benefit rolls was 7.17 million. U.S. employment growth ground to a halt in August, with zero net job creation raising fears of a new recession and putting pressure on the Federal Reserve to ease monetary policy further at its meeting later this month. (Reporting by Pedro Nicolaci da Costa; Editing by Andrea Ricci)