MBS MID-DAY: 11/22/2011

The FHFA reported that the average interest rate on conventional, 30-year, fixed-rate mortgage loans of $417,000 or less decreased 20 basis points to 4.36 percent in October.

The contract rate on the composite of all mortgage loans (fixed- and adjustable-rate) was 4.17 percent in October, down 19 basis points from 4.36 percent in September. The effective interest rate, which reflects the amortization of initial fees and charges, was 4.29 percent in October, down 20 basis points from 4.49 percent in September.

Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $61.2 billion in the second quarter, compared with an increase of $19.0 billion in the first quarter. Current-production cash flow (net cash flow with inventory valuation adjustment) -- the internal funds available to corporations for investment -- increased $86.2 billion in the second quarter, compared with an increase of $21.1 billion in the first.

This was a rise of 3.0 pct versus an expectation of +3.5 pct by economists polled by Reuters. Profits rose at a 4.3 pct pace in the previous two quarters making today's reading a bit of a mixed-bag in that it was a marked slowdown from previous quarters and worse than consensus, but still growth.

(Reuters) - Gross domestic product grew at a 2.0 percent annual rate in the third quarter, the Commerce Department said in its second estimate on Tuesday, down from the previously estimated 2.5 percent.

While the revision was below economists' expectations for a 2.5 percent growth pace, the composition of the GDP report, especially still-firm consumer spending and the first drop in businesses inventories since the fourth quarter of 2009 set the platform for a stronger economic performance this quarter.

Data so far suggest the fourth-quarter growth pace could exceed 3 percent, which would be the fastest in 18 months.

Despite the downward revision, last quarter's growth is still a step-up from the April-June period's 1.3 percent pace. Part of the pick-up in output during the last quarter reflects a reversal of factors that held back growth earlier in the year.

A jump in gasoline prices had weighed on consumer spending earlier in the year, and supply disruptions from Japan's big earthquake and tsunami in March had curbed auto production.

The government revised third-quarter output to account for an $8.5 billion drop in business inventories, which lopped off 1.55 percentage points from GDP growth. Inventories had previously been estimated to have increased $5.4 billion. The drag from inventories was offset by strong export growth. Excluding inventories, the economy grew at an unrevised brisk 3.6 percent pace after expanding 1.6 percent in the second quarter.

A core inflation measure, which strips out food and energy costs, rose at a 2.0 percent rate rather than 2.1 percent. The measure -- closely watched by the Federal Reserve -- grew at a 2.3 percent rate in the prior three months. (Reporting by Lucia Mutikani, Editing by Andrea Ricci)

Perhaps more than any other overnight session in recent memory, last night was quiet in terms of headlines, and low in volume as well. 10yr yields drifted up into the 7am hour, but have returned promptly to yesterday's 5pm levels for the NY open. MBS are a few ticks lower to start with Fannie 3.5's at 101-27 and Stock futures are in the middle of yesterday's range, currently at 1190 in the S&P.

The supercommittee made official that which was almost perfectly speculated by various media outlets yesterday morning: there is no new debt deal and the $1.2 trl failsafes for 2013 spending cuts are automatically triggered (and yes, this provides a whole year to come up with a better solution). The market reaction was every bit the non-event we expected (and were scratching our heads over why the rest of the world seemed to think it was so important. It had no effect on trading late yesterday or overnight. Seriously... no one cares).

Today's economic calendar contains a bit more than yesterday:

830am - Corporate Profits. After showing a 4.3% gain in the previous report, Corporate Profits are expected to have slowed to a 3.5% rate of growth

830am - Real GDP - seen as unchanged from the advance reading of 2.5%. The only major component in which economists polled by Reuters expected a chance was a rise in Sales from 3.6% to 3.8%

1pm 5yr Treasury Note Auction

2pm FOMC Minutes (from 11/2/11 meeting)

Those are some good potential market movers, especially later in the day with a more informative Treasury auction than yesterday's 2yr, and FOMC minutes to boot. Rate sheets should be flat to microscopically improved if current levels hold through print time. We'd have alerts at 101-22/23 as a first layer of concern, followed by 101-19 and 101-16 as "worse" and "worst." Floating intraday otherwise...