MBS MID-DAY: 11/4/2011

Current trading levels in MBS and TSYs are encouraging. Both began the New York session weaker after a fairly uneventful overnight session. The fact that all the news snippets out of the EU weren't big market movers left the door open for this AM's NFP to retain any significance it was going to have.

In that regard, NFP has proven to be moderately significant, garnering plenty of volume and volatility after the release showed 80k new non-farm payrolls. Although this was lower than the expected 95k, there were appreciable revisions to the past 2 releases, painting an overall picture of job growth as "lackluster, but at least positive" as opposed to "at risk of turning negative." Bond markets sold off at a fairly healthy clip as markets digest the sizable revisions, but have since bounced back (stocks failed to break yesterday's highs, at least as indicated by futures trading):

Fannie 3.5's currently up 4 ticks on the day at 101-29
10yr yields 1 bp lower at 2.062
S&P futures down to 1246 after hitting 1256 after the NFP release

The only major risk from a technical standpoint here is that previous support around 2.06 has been acting as somewhat of a resistance level as we try to get back through. We could need additional motivation for that move from the domestic stock market open or a bond-friendly headline. Even so, Fannie 3.5's in the high 101-20's and above should prove to be a good thing for rate sheets this morning and ultimately, MBS are more concerned with the stability of Treasury benchmarks as opposed to whether or not they can rally through resistance levels.