MBS MID-DAY: 1/19/2012

MBS hit session lows with Fannie 3.5's down 5 ticks to 102-27. We have two potential drivers: European equities surging/bunds selling as well as flow-based considerations surround the Fed POMO which is ongoing since 10:15 and set to conclude in 10 minutes. These POMO's have been the biggest source of market movement on more than a few occasions. Yesterday's was unfriendly, and today's looks to be the same for now, though official details in 10 minutes could help moderate the situation. Either way, with MBS now breaking below their long term trend channel, there's a risk of reprices for the worse--assume it will be a bigger risk if things don't quickly correct after 11am.

Results from the Business Outlook Survey suggest that regional manufacturing activity continued to expand at a moderate pace in January. The general activity index, the survey's broadest measure of manufacturing conditions, increased to 7.3 this month from a revised reading of 6.8 in December. Read the press release announcing the data revisions.

All of the broad indicators remained positive this month, and firms continued to report increases in employment. The survey's broad indicators of future activity improved again this month.

• RTRS- PHILADELPHIA FED NEW ORDERS INDEX 6.9 IN JANUARY VS REVISED 10.7 IN DECEMBER
• RTRS- PHILADELPHIA FED PRICES PAID INDEX 31.8 IN JANUARY VS REVISED 30.4 IN DECEMBER
• RTRS- PHILADELPHIA FED EMPLOYMENT INDEX 11.6 IN JANUARY VS REVISED 11.5 IN DECEMBER
• RTRS- PHILADELPHIA FED 6-MONTH BUSINESS CONDITIONS INDEX 49.0 IN JANUARY VS REVISED 40 IN DECEMBER
• RTRS - PHILADELPHIA FED 6-MONTH CAPITAL EXPENDITURES INDEX 22.9 IN JANUARY VS REVISED 10.8 IN DECEMBER

30-year fixed-rate mortgage (FRM) averaged 3.88 percent with an average 0.8 point for the week ending January 19, 2012, down from last week when it averaged 3.89 percent. Last year at this time, the 30-year FRM averaged 4.74 percent.

15-year FRM this week averaged 3.17 percent with an average 0.8 point, up from last week when it averaged 3.16 percent. A year ago at this time, the 15-year FRM averaged 4.05 percent.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.82 percent this week, with an average 0.7 point, matching last week when it averaged 2.82 percent. A year ago, the 5-year ARM averaged 3.69 percent.

1-year Treasury-indexed ARM averaged 2.74 percent this week with an average 0.6 point, down from last week when it averaged 2.76 percent. At this time last year, the 1-year ARM averaged 3.25 percent.

LPS reports the following "first look" at December 2011 month-end mortgage performance statistics derived from its loan-level database of nearly 40 million mortgage loans.

Total U.S. loan delinquency rate (loans 30 or more days past due, but not in foreclosure): 8.15%
Month-over-month change in delinquency rate: 0.0%
Year-over-year change in delinquency rate: -7.7%
Total U.S. foreclosure pre-sale inventory rate: 4.11%
Month-over-month change in foreclosure presale inventory rate: -1.3%
Year-over-year change in foreclosure presale inventory rate: -1.0%
Number of properties that are 30 or more days past due, but not in foreclosure: (A) 4,101,000
Number of properties that are 90 or more days delinquent, but not in foreclosure: 1,792,000
Number of properties in foreclosure pre-sale inventory: (B) 2,066,000
Number of properties that are 30 or more days delinquent or in foreclosure: (A+B) 6,167,000

States with highest percentage of non-current* loans: FL, MS, NV, NJ, IL
States with the lowest percentage of non-current* loans: MT, WY, SD, AK, ND
*Non-current totals combine foreclosures and delinquencies as a percent of active loans in that state.

Notes:
(1) Totals are extrapolated based on LPS Applied Analytics' loan-level database of mortgage assets
(2) All whole numbers are rounded to the nearest thousand

The Consumer Price Index was effectively unchanged in December, rising 0.0119 % vs a 0.1% consensus. Core CPI, which excludes more volatile food and energy rose 0.1455%, marginally higher than the 0.1% consensus. Year over year inflation, both in terms of the headline and core levels were dead-on with estimates, coming in at +3.0% and +2.2% respectively. Real Earning rose 0.5% vs a 0.2% consensus.

Building Permits
Privately-owned housing units authorized by building permits in December were at a seasonally adjusted annual rate of 679,000. This is 0.1 percent (±1.2%)* below the revised November rate of 680,000, but is 7.8 percent (±2.2%) above the December 2010 estimate of 630,000.

Housing Starts
Privately-owned housing starts in December were at a seasonally adjusted annual rate of 657,000. This is 4.1 percent (±11.6%)* below the revised November estimate of 685,000, but is 24.9 percent (±18.3%) above the December 2010 rate of 526,000.

Housing Completions
Privately-owned housing completions in December were at a seasonally adjusted annual rate of 605,000. This is 9.2 percent (±15.1%)* above the revised November estimate of 554,000 and is 7.1 percent (±10.9%)* above the December 2010 rate of 565,000.

Jobless Claims fell by 50k to 352k, their lowest level since April 2008, and their largest drop since 9/2005. Economists polled by Reuters were expecting 385k. This brings the 4-week average down to 379,00 from 382,500 last week and 381,750 the week before. Continuing Claims fell from 3.647 mln to 3.432 mln--this vs. a consensus estimate of 3.603.