MBS MID-DAY: 11/7/2011

(Reuters) - U.S. home prices fell in September for a second month in a row, pressured by weak demand and cheap distressed sales, data analysis firm CoreLogic Inc said on Monday.

CoreLogic'shome price index slipped 1.1 percent from the month before. Compared to September of last year, prices were down 4.1 percent, though this was an improvement from the 4.4 percent year-over-year decline seen in August. Excluding distressed sales, prices were down 1.1 percent from a year ago.

"Even with low interest rates, demand for houses remains muted," Mark Fleming, chief economist at CoreLogic, said in a statement. "Home prices are adjusting to correct for the supply-demand imbalance and we expect declines to continue through the winter. Distressed sales remain a significant share of homes that do sell and are driving home prices overall."

Of the top 100 statistical areas measured by population, 82 showed yearly decreases, the same amount as in August. (Reporting by Leah Schnurr, Editing by Chizu Nomiyama)

Looking at trading levels this morning in MBS, it almost looks like nothing happened over the weekend. Things are relatively flat with the whole stack 1-2 tick in the red at the moment versus Friday's latest levels, which were also some of the highest. So Fannie 3.5's being down 2 ticks isn't so much of the story compared to the fact that they trade at 102-03 currently--higher than 80% of Friday's action.

Truth be told, it was a fairly uneventful weekend. For all the fuss made about Greece heading into the weekend, the fact that the end result was that Papandreou's ruling party scraped together "pass" of their confidence vote and then moved to call the formation of a "unity government" seems to have been expected. In fact, the buzz this morning, if anything, focuses more on Italy where there are to be more confidence votes and potential resignations/oustings of leaders.

There's no notable data on the economic calendar today and tomorrow's first major piece of data won't hit until 1pm with the 3yr note auction. Given this week's auction cycle and the fact that bond markets generally trade on the more bullish end their recent range, we're feeling a bit guarded against auction concessions combined with the possibility that the Greek gov reshuffling could be seen as increasingly positive. So we'd look for locking opportunities with 3.5's over a 101-25 level.

(Reuters) - The Federal Reserve should continue to act "aggressively" to try to bring down the stubbornly high U.S. jobless rate and boost lagging economic growth, a top Fed official said on Monday.

Eric Rosengren, President of the Boston Federal Reserve Bank, said weak labor conditions would help keep inflation below 2 percent over the next several years. "Given the very weak labor market conditions and the low expected inflation rate, the Federal Reserve should in my view continue to take action to aggressively try to reduce the stubbornly high U.S. unemployment rate," Rosengren said.

He said that economic growth had been lethargic despite the Fed's policy actions, and that at 9 percent in October, the jobless rate remains "unacceptably high." Job growth has been too slow to make inroads into the unemployment rate, and the United States also faces economic headwinds lingering from the financial crisis of 2008 and from worries about possible future financial shocks, he said. "In my view the Federal Reserve should continue to use the tools at its disposal to boost demand in the economy," Rosengren said. Also imperative is that fiscal policy, as controlled by federal and state governments, kick in to help the economy, he said.

"It is also important for international policy makers to take actions that provide more stable world markets," he said. Weighing into the debate about the causes of high joblessness, Rosengren said current research did not suggest a change in the structural level of unemployment but instead, "a story of weak demand throughout the economy." (Editing by Chizu Nomiyama)