MBS MID-DAY: 10/11/2011

Friday was pretty ugly. In fact, it capped off an entire week of ugliness. With the exception of Monday, every day of the week was a loser, ultimately leading to a 40bp rise in 10yr yields between Tuesday and Friday and and just over a 2 point drop in Fannie Mae 30yr Fixed 3.5 Coupon MBS Prices. Stocks moved significantly higher as well, but are still quite contained by their September range whereas MBS and Treasuries have broken out of theirs.

Just that one factoid about stocks vs bonds, and their relative performance is enough of a clue that we're dealing with somewhat of an unwinding of the "risk-off" trade driven in small part by the domestic economic outlook and to a much greater extent by the happenings in Europe. That's why Friday's NFP only accounted for not even 1/3rd of the week's total losses

It continues to be all about the ebbs and flows of risk-off/risk-on, but to be sure, this is the biggest, scariest, and most potentially destructive current leading away from low yields that we've seen since well before the August FOMC statement that so fundamentally changed the interest rate landscape.

There's not much by way of data today, save for a 3yr note auction at 1pm, although Slovakia (the last of the 17 countries to vote on the EU's EFSF expansion) was expected to vote around 9am Eastern.

Fannie 3.5's are down 5 ticks on the day at 101-09
Fannie 4.5's are down 4 ticks at 103-20
10yr yields are up 6.3 bps at 2.139.