MBS MID-DAY: 9/29/2011

MBS and the broader bond markets are weathering the storm quite nicely this morning. Fannie 3.5 MBS are down 3 ticks at 102-06, but this is exactly in line with yesterday's highs (3 ticks down from 5pm which had drifted up to 102-09). In addition, 10 yr yields are currently only 1.9 bps higher at 2.00+ and had a nice supportive bounce at 2.02 earlier. Stock futures have been climbing all morning.

So what's the storm? Take your pick really. The overnight session was fairly uneventful considering the drama over Gernany's voting on the EFSF bailout funds was finally resolved without issue. Volume remained light, and 10's still managed to start the morning under 2%.

Then there's the glut of economic data this morning which could be read bullishly if one was so inclined. It's had remarkably (or predictably) little impact given that it was all fairly upbeat.

So it's time to let trade-flows, quarter-end position squaring, and the pre/post 7 year auction trading take over for now. Despite the red in MBS, rate sheets could be relatively flat this morning as long as things don't get choppy enough and take 3.5's past their lows of the morning around 102-03.

(Reuters) - Philadelphia Federal Reserve Bank President Charles Plosser said he was skeptical the central bank's so-called "Operation Twist" will prompt businesses to hire or consumers to spend given a backdrop of continued structural adjustments in the economy and fiscal uncertainty.

"We should not take certain actions simply because we can," Plosser, one of the central bank's most vocal inflation hawks told a forum of business leaders in Radnor, Pennsylvania. "The ills we currently face are not readily resolved through ever more accommodative monetary policy."

Plosser warned the Fed's extraordinarily easy policies could lead to high inflation down the road, even with unemployment still high.

"Creating an environment of stagflation, reminiscent of the 1970s, will not help businesses, the unemployed or the consumer. It is an outcome we must carefully guard against," he said.

The Philadelphia Fed chief said he also objects to the Fed's pledge to keep interest rates low for two years, as according to his forecast they will need to be raised earlier.

That said, there would be scenarios in which he would support further easing: if the European sovereign debt crisis led to a major financial market disruptions or if deflation became a real threat.

"I do not see either of these scenarios in my forecast, so I do not anticipate that further accommodative monetary policy actions will need to be taken," he said.
(Reporting by Kristina Cooke; Editing by James Dalgleish)

(Reuters) - The U.S. economy likely created 192,000 more jobs in the year through March than previously estimated, the Labor Department said on Thursday.
Once a year, the department compares its nonfarm payroll data -- based on monthly surveys of a sample of employers -- with a much more complete database of unemployment insurance tax reports.
It said its latest comparison suggests the level of employment in March was 0.1 percent higher than it had previously stated.
Thursday's report is a preliminary estimate, with a final reading to be released early next year.
Government statisticians will then use the final estimate to revise payroll reports before and after the March "benchmark revision."

GDP

- Q2 GDP +1.3 (forecast = +1.2)
- Core PCE (inflation metric) +2.3 (forecast +2.2)
- Consumer Spending +0.7 (prev +0.4)
- Business Inventories Fall, Cut 0.28 pct from GDP

Jobless Claims

- 391k vs 420k forecast. was 428k last time
- 4 week average down to 417k from 422.25k
- Continued Claims at 3.729 mln, higher than expected, lower than previous

Corporate Profits

- Rose by 4.3 pct versus previous rise of 4.1 pct