MBS MID-DAY: 10/26/2011

(Reuters) - New U.S. single-family home sales rose at their fastest pace in five months in September, a government report showed on Wednesday, but sustained price declines indicated the housing market is far from recovery.

The Commerce Department said sales increased 5.7 percent to a seasonally adjusted 313,000-unit annual rate, as sales in the South logged their fastest pace since April 2010, offsetting a steep decline in the Midwest.

The percent change in overall sales last month was the largest since March, while the sales pace was the fastest since April.

August's sales pace was revised slightly up to 296,000 units from the previously reported 295,000 units. Economists polled by Reuters had forecast sales at a 300,000-unit rate. In the 12 months through September, new home sales were down 0.9 percent.

The Commerce Department report showed the median sales price for a new home fell 3.1 percent last month to $204,400 last month, the lowest since October 2010. Compared to September last year, the median price was down 10.4 percent.

At September's sales pace, the supply of new homes on the market fell to 6.2 months' worth, the lowest since April 2010, from 6.6 months' worth in August. (Reporting by Lucia Mutikani, Editing by Andrea Ricci)

(Reuters) - Germany's Bundestag lower house of parliament approved a motion to strengthen the euro zone rescue fund via leveraging on Wednesday, providing Chancellor Angela Merkel with the mandate she needs to negotiate at a key euro summit later in Brussels.

The vice president of the lower house said 503 lawmakers had voted in favour of the motion, 89 had voted against and there were 4 abstentions.

The motion states that the European Central Bank (ECB) will no longer need to buy bonds on the secondary markets, and that the rescue fund cannot be financed through the ECB.

(Reporting by Alexandra Hudson and Annika Breidthardt)

So far, we're just seeing a slight correction this morning to an impressive rally yesterday. In fact, some of the weakness on screens at the moment is as simple as that. The fact that 10's trade at 2.13 and Fannie 3.5's at 101-13 is notable for the fact it's so far away from Monday's range. You might even say that yesterday's rally merely had to take some in-fashion lumps and suffer a slight haircut (thankfully not the 50-65% variety that will be discussed for Greece today).

MBS prices and TSY yields have been holding up well following the Durable Goods release, and indeed it's proven (as expected) to not be much of a market mover with EU Summit details looming later today. Despite a few ticks in the red, rate sheets could be closer to unchanged, perhaps even better than yesterday, depending on the lender. Then again, lenders could be cautious ahead of the summit details later today. As far as timing, we don't know exactly when to expect market-moving wires to hit, simply that the hors d'oeuvres start making the rounds at 1:15pm Eastern (we're pretty sure, but this whole "paying attention to other countries besides the USA thing" is still pretty new. Times, they are a-changin'!)

(Reuters) - Demand for a range of long- lasting U.S. manufactured goods rose more than expected in September to post the largest increase in six months, cementing views of a step-up in economic growth in the third quarter, even though new orders for transportation equipment fell.

The Commerce Department said on Wednesday durable goods orders excluding transportation rose 1.7 percent after falling 0.4 percent in August. The rise beat economists' expectations for a 0.4 percent increase.

But a drop in demand for transportation equipment as bookings for motor vehicles and civilian aircraft declined pulled down overall orders 0.8 percent. That followed a 0.1 percent dip in August and was in line with economists' expectations for a 0.9 percent fall.

Transportation orders fell 7.5 percent, the largest decline since April.

The tenor of the report was further strengthened by a 2.4 percent jump in non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending. That was the largest increase since March.

That category increased 0.5 percent in August, and last month's increase was well above economists' expectations for a 0.5 percent rise.

The report was further evidence that economic activity picked up in the third quarter after a weak first half. Though manufacturing has slowed in recent months, the September durable goods report pointed to underlying resilience. (Reporting by Lucia Mutikani, Editing by Andrea Ricci)