The Day Ahead: HARP 2.0 and Plenty of Economic Data

By: Matthew Graham • Tue, Nov 15 2011, 8:14 AM

From MBS Live this morning:

Standard-Issue Night of European Malaise Benefiting Bond Markets 8:13AM

No shockingly negative or positive headlines or happenings stand out from the overnight session, but the general theme leans toward weakness and risk aversion centered on the European Periphery. Italy's new PM is having some trouble forming a new cabinet. Greece is having some trouble agreeing on new austerity measures, and a report ranked France 13/17 among Euro-Zone members in terms of economic competitiveness.

All of the above has Treasuries rallying decently with the 10yr down around 4bps to around 2% at the moment. The lower MBS stack is slightly improved with Fannie 3.5's up a few ticks to 101-21 as the upper stack continues to struggle with anxiousness over today's expected HARP 2.0 details. The economic calendar is fully packed today. Here's the run-down:

- Producer Price Index - 830am. Core inflation at the producer level is seen at +0.1 pct after last month's rise of 0.2 pctm while the headline is expected to show a bigger swing from last month's 0.8 pct rise to a 0.1 pct decline this month. Focus on the core reading, both for the month-over-month metric as well as year-over-year, which is expected to fall to 6.3% from 6.9%

-Retail Sales - 830am. Large drops are expected on the headline (1.1 pct gain last month vs an expected 0.3 pct gain this month) as well as excluding the automotive sector (0.6 pct gain last month vs tomorrow's consensus of +0.1 pct)

-Empire State Manufacturing Survey - 830am. Forecast: -2.1, which would be an improvement from the previous reading of -8.48

-Business Inventories - 10am. Seen falling from last month's print of 0.5 pct to 0.1 pct

-Fed-Speak from Bullard, Williams, and Fisher

-Fed Treasury buying: $4.25 to $5.0 bln in the 6-8yr sector

If MBS stay on the flat side this morning, we'd set the first layer of alerts at 100-16 to 100-18. The first logical upside target is 101-26 and we'll reassess when/if either of those are taken down.

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With the most interesting news for the mortgage world today being the expected release of additional HARP 2.0 operational details, we can see the hesitation playing out in the higher coupons in this clip from MBS Live: