MBS MID-DAY: 9/20/2011

How many economically negative pieces of data does it take to counteract one potentially positive development in the Greece situation? Apparently, all of them!

A few more positive soundbytes from Greece's phone call with its creditors was all it took to lead overnight equities futures higher and bond markets lower (higher in yield). Despite a downgrade of Italy and several other negative headlines overnight, MBS and Treasuries still came in the door in weaker territory.

Now after an ugly Housing Starts number and some negative forecast changes from the IMF, the global economic picture is perhaps coming back into focus after earlier distortion from the "Greece Goggles."

- Fannie 3.5's are down 6 ticks on the day at 101-17
- Fannie 4.0's are down 4 ticks on the day at 104-15
- 10yr yields are effectively unchanged at 1.954

There's no more data on tap today and markets remain at the whim of Euro-Headlines and any pre-FOMC positioning left to be done. Sadly, neither of those two factors adhere to a schedule.

Rate sheets are a bit of a challenge at this point considering the volatile morning. Weaker for sure (perhaps less weak than they would have been at 820am though!) and probably a bit later than normal.

(Reuters) - Europe and the United States could slip back into recession next year unless they quickly tackle economic problems that could infect the rest of the world, the International Monetary Fund said on Tuesday.

The IMF said financial volatility had increased dramatically as investors worried about an escalating debt crisis in the euro zone and a weakening U.S. recovery. Those two regions present the biggest risks to the global economic outlook, it said, warning that political gridlock could block remedial action.

"Policy indecision has exacerbated uncertainty and added to financial strains, feeding back into the real economy," the IMF said in its latest World Economic Outlook report. The IMF cut its forecast for global growth to 4.0 percent for this year and next, shaving projections for almost every region of the world and saying risks remained tilted to the downside. Just three months ago it had projected an expansion of 4.3 percent for 2011 and 4.5 percent for 2012.

The IMF's message to European leaders was they should do whatever it takes to preserve confidence in national policies and the euro, and it urged the European Central Bank to lower interest rates if risks to growth persisted.

The fund cut its growth forecast for the 17-nation euro zone by nearly half a percentage point to 1.6 percent in 2011 and even weaker conditions are seen for next year with growth of just 1.1 percent. Currently the single currency region is scarcely growing at a 0.25 percent annual rate.

The IMF cautioned that hasty budget cuts in the United States could further weaken growth, and it said the U.S. Federal Reserve should stand ready to ease monetary policy further. The Fed meets on Tuesday and Wednesday.

(Reuters) - U.S. housing starts fell more than expected in August as groundbreaking for both single-family and multi-family units declined, while permits for future construction rose, a government report showed on Tuesday.

The Commerce Department said housing starts decreased the most since April, down 5.0 percent to a seasonally adjusted annual rate of 571,000 units.

July's starts were revised down to a 601,000 unit pace, which was previously reported as a 604,000 unit rate. Economists polled by Reuters had forecast housing starts to fall to a 590,000-unit rate in August.

An overhang of previously owned homes on the market has left builders with little appetite to break ground on new projects and is frustrating the economy's recovery from the 2007-09 recession. Housing starts are at less than a third of their peak during the housing boom. Compared to August of last year, starts were down 5.8 percent. Housing starts for multi-family homes fell 13.5 percent to a 154,000-unit rate. Single-family home construction -- which accounts for a larger share of the market -- dropped 1.4 percent to a 417,000-unit pace.

New building permits rose 3.2 percent to a 620,000-unit pace last month. Economists had expected overall building permits in August to fall to a 590,000-unit pace. Permits were boosted by a 4.5 percent rise in the multi-family segment. Permits for the construction of buildings with five units and more increased 0.6 percent. Permits to build single-family homes climbed 2.5 percent.

New home completions fell 2.7 percent to a 623,000-unit pace in August. (Reporting by Jason Lange, Editing by Andrea Ricci)