MBS MID-DAY: 12/27/2011

Consumer Confidence for the month of December rose to 64.5 versus a revised reading of 55.2 in November according to a report released by the Conference Board. Economists polled by Reuters expected the Index at 58.3.

Consumers were more upbeat about their "Present Situation" than they've been since September 2008 as indicated by that component of the index coming in at 46.7 vs 38.3 in the previous report. Expectations also improved to 76.4 vs a revised 66.4 in November.

Inflation expectations fell slightly, from 5.6 in November to 5.4 pct currently and Jobs were see as slightly easier to find with the "jobs hard to get" component of the index falling to 41.8 vs a revised 43.0 in November.

The overall index is at its highest level since April 2011 and the expectations component is the highest since May 2011. So far, the brunt of the impact of this report is being seen in stock market gains, but bond markets have done little to follow suit.

»U.S. home prices, as determined by the 10- and 20-City Composites, fell 1.1% and 1.2% respectively in October versus September

»Nineteen of the 20 cities covered by the indices saw home prices decrease over the month

»The 10- and 20-City Composites posted annual returns of -3.0% and -3.4% respectively versus October 2010

»Fourteen of the 20 MSAs and both Composites saw improved annual returns compared to September’s data

»Average home prices across the U.S. are back to their mid-2003 levels

»Measured from their June/July 2006 peaks, the peak-to-current declines for the 10-City Composite & 20-City Composite are -31.9% and -32.1%, respectively.

Last week saw a steep sell-off in bond markets as low volume and a limited amount of participation paved the way for domination by whichever side of the trade showed up in greater numbers. It turned out to be "the sellers" leading up to the Christmas Holiday in the US, but as we said then and will continue to say this week, we can't really read much into trading levels and ostensible directional sentiment based on this year-end, illiquid trading.

This week promises to be similar to the last in the sense that light volume and liquidity could give way either to periods of apathetic sideways movements punctuated by exaggerated swings, but neither being motivated by anything especially meaningful or alarming. With the US Holiday just passed, another on the way this weekend, a shortened trading day on Friday, and even a UK Holiday today (Boxing Day), many market participants will simply extend last week's theme of "the trading year being over." This week sees some more harmony between that fact and the economic calendar (thankfully). Whereas last week contained a round of Treasury Auctions as well as a fair bit of data into the last 2 days, this week's economic calendar will work in more harmony with the general tenor of another holiday-shortened week.

Bond markets have been sideways so far this morning and trading has been light. Fannie 3.5's are up 2 ticks at 102-02 and 10yr yields are 1.4 bps lower at 2.0069. Case Shiller is the first major report of the morning at 9am, but Consumer Confidence at 10am stands the best chance to be a market mover as far as economic data is concerned.