MBS MID-DAY: 9/27/2011

Reuters) - U.S. consumer confidence was little changed in September amid concerns about income as a gauge of labor market conditions deteriorated to its worst since 1983, an independent survey showed on Tuesday.

The Conference Board said its index of consumer attitudes ticked up to 45.4 from an upwardly revised 45.2 in August.

Economists polled by Reuters had expected the index to rise to 46.0 from a previously reported 44.5 in August. Consumer confidence is regarded as a measure of consumer health.

"The pessimism that shrouded consumers last month has also spilled into September. Consumers expressed greater concern about their expected earnings, a sign that does not bode well for spending," said Lynn Franco, director of the Conference Board Consumer Research Center.

In a sign that people were struggling to find employment, the jobs-hard-to-get index rose to 50.0, the highest level since May 1983, from 48.5 the previous month. (Reporting by Lucia Mutikani, Editing by Chizu Nomiyama)

MBS opened up in much weaker territory this morning, bounced higher, and have fallen back near lows.

Fannie 3.5's are 14 ticks down on the day at 102-06
Fannie 4.0's are 14 ticks down on the day at 104-17
Ginnie 3.5's are 15 ticks down on the day at 103-23
10yr Yields are 9 bps higher on the day at 1.994

Incidentally, that's the "concrete ceiling" level in Fannie 4.0's (104-19 actually, but 2 tick variance is OK). We might hope for some pivot-based support. Treasuries are also hoping for support at 1.98, one of their recent pivots and also roughly the mid-point of their extended trend channel linked below. (note that this morning's sell-off took yields directly to the teal line).

Overnight volumes were by no means huge, but there were tons of potential market movers. Take your pick:

-European developments with their TARP-like EFSF
- selling in Japan as their fiscal half-year end approaches
- Asset allocation trades pulling money out of bonds and into stocks in preparation for Q4 portfolios
- preparation to take down this week's auctions
- technical break of the 1.90 support in 10's suggesting a 1.98 target
- absence of negative economic data (Case Shiller slightly better even)
- general resurgence of risk-on trade given a combination of the above factors.
- Timing of this alert (bond markets discounting themselves a bit for the stock market open. If stocks bounce lower, so might yields.

Overall, the morning has been volatile enough that lenders' rate sheets will either be delayed, or significantly worse to account for the volatility. But we can't stress the following point strongly enough: look at the chart in the link below. 10's are smack dab on the dotted teal line, right in the middle of their extended bullish trend. A little give-back isn't the end of the world if it's not carrying us out the top side of this trend.