MBS MID-DAY: 10/13/2011

It's nice to see some green on the screens after the past 7 sessions or so, but it begs the obvious question: what kind of challenges are being created for today's 30yr bond auction after yesterday's 10yr auction struggled even after yields rose in the AM. But let's focus less on the "rain" and more on the "parade" for now...

- Fannie 3.5's are up 11 ticks to 101-07
- Fannie 4.0's are up 5 ticks at 103-14
-10 yr yields are down 7 bps to 2.143
- S&P's are down about 13 points to 1194.

All of these levels come on the heels of big technical bounces between yesterday and this morning. We could be seeing the first day of bond markets officially digging in and fighting back against the recent insane punishment, otherwise known as "October."

Still a bit too soon to tell though... There's econ data yet to come tomorrow, not to mention today's 1pm 30yr bond auction. For now, rate sheets might be delayed due to the volatility or lenders that priced early might consider a reprice.

(Reuters) - U.S. economic growth is likely to pick up a notch by year-end, though analysts have reined in their expectations again and still see a one-in-three chance the economy will slide back into recession, a Reuters poll showed on Thursday.

The poll of more than 70 economists predicted an economy limping along after a weak first half, with unemployment lingering around 9 percent until the end of next year.

With the economy sensitive to shocks, the sovereign debt crisis in the euro zone remains one of the biggest threats. European leaders will meet at the end of the month and a new comprehensive plan is expected to be discussed.

U.S. gross domestic product (GDP) was seen rising to an annualized 2.0 percent in the third quarter, slightly up on 1.3 percent in Q2. The poll put GDP growth at 1.9 percent in Q4 and 1.8 percent in the first quarter of 2012.

Respondents saw the number of unemployed staying higher for longer. Over the past three months, 30 out of 42 common contributors increased their unemployment rate projections across the entire forecast horizon.

The unemployment rate is expected to average 9.1 percent for the year, up from earlier expectations of 8.9 percent.

It is expected to average 8.9 percent next year -- barely down at all, and up from the previous 8.5 percent consensus.

The U.S. housing market, at the epicenter of the financial crisis that started four years ago, is expected to stabilize, although house prices are not expected to rise until the second half of 2012.

In the week ending October 8, the advance figure for seasonally adjusted initial claims was 404,000, a decrease of 1,000 from the previous week's revised figure of 405,000. The 4-week moving average was 408,000, a decrease of 7,000 from the previous week's revised average of 415,000.

The advance seasonally adjusted insured unemployment rate was 2.9 percent for the week ending October 1, a decrease of 0.1 percentage point from the prior week's revised rate of 3.0 percent.

The advance number for seasonally adjusted insured unemployment during the week ending October 1 was 3,670,000, a decrease of 55,000 from the preceding week's revised level of 3,725,000. The 4-week moving average was 3,724,000, a decrease of 21,250 from the preceding week's revised average of 3,745,250.

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total August exports of $177.6 billion and imports of $223.2 billion resulted in a goods and services deficit of $45.6 billion, virtually unchanged from July, revised.

August exports were $0.1 billion less than July exports of $177.7 billion. August imports were $0.1 billion less than July imports of $223.3 billion. In August, the goods deficit increased $0.1 billion from July to $61.4 billion, and the services surplus increased $0.2 billion to $15.8 billion.

Exports of goods decreased $0.1 billion to $126.7 billion, and imports of goods were virtually unchanged at $188.1 billion. Exports of services were virtually unchanged at $50.9 billion, and imports of services decreased $0.2 billion to $35.1 billion.

The goods and services deficit increased $0.1 billion from August 2010 to August 2011. Exports were up $22.7 billion, or 14.7 percent, and imports were up $22.8 billion, or 11.4 percent.

here are a few candidates for market movers among headlines overnight, including a narrowing of China's trade surplus, an impending downgrade of UK banks, or even simply a set-up for this morning's domestic Trade Balance report. But given the sharp bounce off 2.22% in 10's overnight, and the fact that stocks reached the upper end of a potential trend channel, the "technical bounce" explanation is as good as any in the volatile and uncertain environment.

Fannie 3.5's are up 2 ticks at 100-30
Fannie 4.0's are up 1 tick at 103-09
10 yr yields are down just over a bp at 2.198
Jobless Claims and the Trade Balance data are minutes away and could well rock the boat of slightly positive stability seen so far this morning. But if the green on screens sticks around for an hour or two, rate sheets should improve.