MBS MID-DAY: 11/30/2011

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, surged 10.4 percent to 93.3 in October from 84.5 in September and is 9.2 percent above October 2010 when it stood at 85.5. The data reflects contracts but not closings.

Lawrence Yun, NAR chief economist, said improved contract activity is a hopeful sign. “Home sales have been plodding along at a sub-par level while interest rates are hovering at record lows and there is a pent-up demand from buyers who normally would have entered the market in recent years. We hope this is indicates more buyers are taking advantage of the excellent affordability conditions,” he said.

(Reuters) - Business activity in the U.S. Midwest grew faster than expected in November as orders surged, a report showed on Wednesday.

The Institute for Supply Management-Chicago business barometer rose to 62.6 from 58.4 in October, well above economists' forecast of 58.4. A reading above 50 indicates expansion in the regional economy.

The employment component of the index eased to 56.9, from 62.3 in October. New orders jumped to 70.2, from 61.3. (Reporting by Ann Saphir, Editing by Chizu Nomiyama)

RTRS-CHICAGO PURCHASING MANAGEMENT INDEX HIGHEST SINCE APRIL 2011

RTRS -CHICAGO PURCHASING MANAGEMENT NEW ORDERS INDEX HIGHEST SINCE MARCH 2011

(Reuters) - Private sector job growth accelerated in November as employers created the most jobs in nearly a year, prompting economists to raise their forecasts for Friday's more comprehensive U.S. labor report.

The ADP National Employment Report on Wednesday showed private employers added 206,000 jobs this month, surpassing economists' expectations for a gain of 130,000 jobs. It was the biggest gain since December 2010.

"The ADP news is very good news. The private sector is adding jobs," said Wayne Kaufman, chief market analyst at John Thomas Financial in New York.

October's private payrolls growth was revised up to an increase of 130,000 from the previously reported 110,000. The ADP report is jointly developed with Macroeconomic Advisers LLC.

PRODUCTIVITY AND COSTS

Separate data showed the rebound in U.S. nonfarm productivity growth was not as strong as previously estimated in the third quarter, while wages declined for two straight quarters.

Productivity increased at a 2.3 percent annual rate, the Labor Department said, a downward revision to its previous estimate of 3.1 percent.

MBA APPS

The housing sector showed no signs of substantial improvement as applications for U.S. home mortgages slumped for the third week in a row last week, hit by a drop in demand for refinancing.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, tumbled 11.7 percent in the week ended November 25.

Analysts will get more data on the housing market later in the morning with pending home sales for October on tap.

Although 10yr yields saw some fast-paced moves between highs and lows last night, those extremes constituted and even narrower range than yesterday's. 10's were mostly between 1.98 and 2.02. Treasuries even did a good enough job of shrugging off this morning's first mini-tape-bomb: China is lowering reserve ratio requirements for Chinese banks by 50%. 10's managed to stay under 2.02% following that news, despite a 16-17 point advance in S&P's. But then the 2nd tape bomb hit right at 8am when the ECB, Fed, and other central banks announced they’d be lowering pricing of liquidity swaps by 50 bps and that the ECB particularly will reduce the initial margine for 3-month dollar-based swaps from 20% to 12%.

This started of a move higher for Treasuries (and lower for MBS prices) that was just exacerbated by a much-stronger-than-expected ADP Employment print at 815am. If we'd put out the morning update at 7:59 AM, it would be fairly boring and have 10yr yields at 1.98, but as it stands, 10yr yields are at 2.07 20 minutes later after a move that has been almost straight up.

MBS are chopping around a bit, but are certainly weaker, even if not as weak as Treasuries. Fannie 3.5's are down 8 ticks day over day to 101-23. but that could quickly deteriorate if 10's don't hold firm to the 2.07 support.

There's more to come on the economic calendar as well. Buckle your seatbelts, it could be a bumpy morning trying to get this bird off the ground.

700 AM - MBA Applications - previous purchase change: +8.2% / previous refi change: -4.0%

815 AM - ADP Employment - previous: 110k / forecast 130k

830 AM - Productivity and Costs - previous: 3.1% productivity, -2.4% costs / forecast: 2.6% productivity, -2.2% costs

945 AM - Chicago PMI - previous 58.4 / forecast 58.4

1000 AM - Pending Home Sales - previous change: -4.6% / forecast +1.5%

200 PM - Beige Book