MBS MID-DAY: 9/30/2011

(Reuters) - U.S. consumer sentiment improved in late September but worries persisted about jobs and finances which could curb household spending in the coming months, a private survey released on Friday showed.

The Thomson Reuters/University of Michigan's final September reading of the overall index on consumer sentiment stood at 59.4, up from 57.8 earlier this month. Economists had expected no change from the initial September reading.

The index finished at 55.7 in August. "The data indicate that consumers have shifted from anticipating deeper declines to the growing belief that the economy will stagnate at its currently depressed level," survey director Richard Curtin said in a statement.

The survey's barometer of current economic conditions rose to 74.9 from 74.5 in early September and 68.7 in August. Analysts had expected no change from the early September figure.

The survey's gauge of consumer expectations edged up to 49.4 from 47.0 in early September and 47.4 in August. Analysts had expected no change from the earlier reading.

The survey's one-year inflation expectation fell to 3.3 percent from 3.7 percent earlier this month and 3.5 percent in August, while the survey's five-to-10-year inflation outlook dipped to 2.9 percent from 3.0 percent in early September and was unchanged from 2.9 percent in August. (Reporting by Richard Leong; Editing by James Dalgleish)

(Reuters) - Business activity in the U.S. Midwest grew more than expected this month, buoyed by new orders and a jump in employment, a report showed on Friday.
The Institute for Supply Management-Chicago business barometer rose to 60.4 in September. The reading was 56.5 in August, and economists had forecast a September reading of 55.5.
The employment component of the index jumped to 60.6, from 52.1 in August. New orders rose to 65.3, from 56.9.
A reading above 50 indicates expansion in the regional economy.
(Reporting by Ann Saphir, Editing by Chizu Nomiyama)

A combination of bond-friendly overnight data and weak consumer spending data this morning is bringing MBS to their highest levels since the major sell-off on the 23rd. Fannie 3.5's are flirting with 103-00 and 10yr yields are just over 9 bps lower at 1.907
Although the overnight session wasn't too robust in terms of volume, things have picked up so far this morning and we're waiting on the next reports: Chicago PMI and Consumer Sentiment coming up shortly. Unless one of those contains a big, economically bullish surprise, rate sheet offerings will be the best of the week.