MBS RECAP: 11/2/2011

Ever since the first few ticks of market movement following the FOMC statement came across a bit too far apart in time and a bit too close together in price, we've been destined to rely primarily on one of two things for guidance going forward. Greece and NFP. The former only adheres to a schedule in some small ways, such as the confidence vote that will ostensibly take place on Friday and the referendum hopefully before year-end. The latter we know will hit at 830am on Friday, but also that it relies at least in part, on the former in order to realize it's true potential.

In other words, today's FOMC was a non-event, and normally we'd clearly look next to Friday's NFP except for the fact that we have to constantly be on the lookout for any little headline out of Greece. Oh! and hopefully the confidence vote is out of the way before NFP otherwise we'll be viewing it's guidance through very foggy glass until the Greece vote happens. Sad but true. Still... Thursday will lob a few reports our way. Yes, they can still move markets, but likely only "within a range." Here's the run-down:

830 Jobless Claims
830 Productivity and Labor Costs
10am Factory Orders
10am ISM Non-Manufacturing Business Activity and Index
For more details, see the link below, or the Economic Calendar window in the MBS Dashboard.

Rate sheets may improve if MBS maintain current levels. Fannie 3.5's have been rallying all day, mostly steadily, and at a very moderate pace, currently trading briskly around unchanged levels at 102-09 (trading from 102-08 to 102-11 in recent minutes), having gained a few ticks after the Fed's forecast revisions were released.

The Fed sees 2012 GDP at 2.5-2.9 now vs the previous estimates of 3.3-3.7. The Unemployment forecast rose from 7.8-8.2 to 8.5-8.7. The Fed continues to see inflation in the 1.5-2% range through 2014.

Lenders will likely wait for the 2:15 Bernanke Press Conference, but if prices stay at current levels for along, a few additional lenders could reprice for the better. An indirect benefactor of MBS could be the stock market, if the S&P falles, say, below 1222, MBS will probably find a few more ticks of green.

(Reuters) - The European Union and IMF will not release an 8 billion euro payment to Greece until after the country has held a referendum on the EU's latest bailout programme, a source on the IMF board and an EU source said on Wednesday.

Euro zone leaders last week signed off on the sixth tranche from a 110-billion-euro package agreed for Athens last year, but the sources said the payment was on hold and would not be paid until after the referendum. Without the payment, Greece could face bankruptcy.

"The board would not want to give money to Greece and then wonder what will happen," the IMF board source said. "The board will want comfort that Greece will fulfil its commitments and right now Papandreou is unable to give that."

The EU source said EU countries had aligned themselves with the IMF and would only make the payment once the international lender had clarity from Greece on its commitments.

"The sooner Greece holds the referendum, the sooner the sixth tranche will be paid. But right now, it isn't going to be paid," the EU source said.

MBS were in positive territory heading into the 12:32pm release of the FOMC Announcement. If it they had been hoping for additional consideration from the new statement, you wouldn't know it by the reaction. Reason being: The Fed didn't give MBS any additional consideration and MBS didn't sell off, either outright or vs TSYs. But as the reaction has manifested itself, MBS are now a tick in the red at 102-08 in Fannie 3.5's with a pivot point below at 102-06/07 from which we might hope for some support. If we get support there, reprices for the better are possible though it's uncertain how many lenders beyond the characteristic "early few" would get on board.

The statement was about as equivocal as it could have been, with all the usual suspects still in play: slow growth, low rates through 2013, inflation not a threat, continue to monitor, act as needed, blah blah blah. One point of interest might be the fact that we've decreased the number of dissenters from 3 to 1. Bond markets are eyeing stock trading closely right now and may be anxious that the emotional equities side of the market see increased prospects for QE3 after this shift in dissenters. As stocks whip around, ostensibly trying to decide whether or not to treat 1229/1230 S&P as some sort of epic pivot point, bond markets look ready to capitulate. Show's not over yet, things are still choppy. 1230 ceiling for stocks = good for bonds, but if stocks treat it as a floor, or worse yet, a "trampoline," bonds could suffer, MBS too.