As we witnessed and discussed yesterday, markets are operating around technical tipping points, both for stocks and bonds. We also witnessed an exceedingly connected stock lever and it's been a constant topic of discussion that a certain magnitude of selling in stocks would be needed for 10yr benchmarks and MBS to break into better territory. That's what's going on right now.. Stocks failed to break today's short term technical resistance. The long end of the yield curve saw that weakness, and pounced. 10yr notes are down to 2.574 and Fannie 4.0's are up 9 ticks on the day now at 102-27. If you already had a rate sheet for the day, these levels would naturally coincide with potential for reprices for the better, but they'd have to show some staying power. If you don't have rates yet, this could delay sheets.

(Reuters) - New orders received by U.S. factories fell in June, pulled down by weak demand for transportation equipment, government data showed on Wednesday. The Commerce Department said orders for manufactured goods fell 0.8 percent after a revised 0.6 percent increase in May. Economists had forecast a 0.7 percent decline after a previously reported 0.8 percent rise. Manufacturing has shouldered the economy's recovery and the slowdown in factory orders in June further diminished prospects of a strong and swift step-up in growth after a very weak first half. Data on Monday showed manufacturing activity hit a two-year low in July. Gross domestic product growth slowed to an annual rate of 1.3 percent in the second quarter after a 0.4 percent pace in the January-March period. Manufacturing accounts for about 12 percent of GDP. The Commerce Department report showed transportation orders dropped 8.6 percent in June after a 5.8 percent increase the prior month. Orders excluding transportation ticked up 0.1 percent in June after being flat in May. Unfilled orders rose 0.3 percent after increasing 0.9 percent in May. The moderate rise in unfilled orders suggested an easing in the disruption in production caused by a shortage of inputs from Japan after the devastating earthquake in March. Shipments rose 0.2 percent after being flat the prior month. Inventories increased 0.2 percent after rising 0.8 percent in May, indicating that stocks were not piling up, despite weak demand. The department said orders for durable goods, manufactured products expected to last three years or more, fell 1.9 percent instead of the 2.1 percent drop reported last month. Orders excluding transportation were up 0.4 percent instead of a 0.1 percent gain. (Reporting by Lucia Mutikani, Editing by Andrea Ricci)

(Reuters) - The pace of growth in the U.S. services sector ticked down unexpectedly in July to the lowest level since February 2010, according to an industry report released on Wednesday. The Institute for Supply Management said its services index fell to 52.7 last month from 53.3 in June. The reading fell shy of economists' forecasts for 53.6, according to a Reuters survey. The new orders gauge slipped to 51.7 from 53.6, while employment fell to 52.5 from 54.1. A reading above 50 indicates expansion in the sector. (Reporting by Leah Schnurr, Editing by Chizu Nomiyama)

(Dow Jones)--The U.S. Treasury Department Wednesday said it would issue $72 billion in new debt next week, though future auctions may decrease slightly as the budget deficit estimates are trimmed. The announcement follows by a day Congress's approval of a package to raise the federal debt limit and cut government spending. Treasury had warned for months that the government would exhaust its borrowing authority after Tuesday if the cap wasn't increased. The regular quarterly auction held steady the amount of long-term debt issued by the Treasury at the last refunding. The Treasury said it will sell $32 billion in three-year notes on Aug. 9, $24 billion in 10-year notes on Aug. 10, and $16 billion in 30-year bonds on Aug. 11. All of the auctions will settle on Aug. 15. During the current quarter, Treasury will meet the balance of its financing requirements with regular weekly bill auctions, monthly security auctions, and Treasury inflation-protected securities, or TIPS, auctions. Treasury said it expects to modestly decrease nominal coupon issuance in coming months. It also said it expects to provide more guidance in November about TIPS issuance in 2012. Next week's auctions of long-term debt will refund $24.4 billion of maturing securities and raise $47.6 billion of new cash, Treasury said. On Monday, Treasury estimated it expects to borrow $331 billion this quarter. For the next quarter, October through December, Treasury expects to borrow $285 billion. The agency wouldn't have been able to issue new debt if Congress hadn't agreed to raise the debt ceiling.

Volatility is not a friend to MBS valuations, loan pipelines or rate sheets. Anytime TBAs move sharply, as they have over the past four sessions, lenders are left with extra hedging costs. These additional costs, which include fewer deliverable loans as deals fallout as well as market losses incurred on MBS short positions (that is how lock desks hedge against interest rate risk, by selling MBS), must be recovered. That can happen either by adding new loan production to the pipeline or by an MBS sell-off that allows the desk to buy back their MBS hedges at cheaper prices (or a well-timed roll/coupon swap). The speed and size of the recent rally was simply too big and too quick, secondary didn't have a chance to adjust their hedging strategies before rates plummeted. And now we're all playing catch up and loan pricing is suffering as a result. There is another variable in the mix as well. Some lenders have been adjusting their servicing models and reducing SRP values. That further explains the extra margin in your rate sheets. It's not all a factor of extra juice (MLOs describe it as "greed"), it's a loss of income.

After yesterday's rally brought MBS to the best levels of the year, those gains are being held so far this morning. Fannie 4.0 coupons have been in about a 2 tick range between 102-18 and 102-20. 10yr notes are currently at 2.622. There wasn't much of a response, if any, to the ADP Employment numbers coming in slightly better than expected, and the next economic data is in about half an hour with Factory Orders and ISM Non-Manufacturing.

(Reuters) - Russian Prime Minister Vladimir Putin accused the United States Monday of living beyond its means "like a parasite" on the global economy and said dollar dominance was a threat to the financial markets. "They are living beyond their means and shifting a part of the weight of their problems to the world economy," Putin told the pro-Kremlin youth group Nashi while touring its lakeside summer camp some five hours drive north of Moscow. "They are living like parasites off the global economy and their monopoly of the dollar," Putin said at the open-air meeting with admiring young Russians in what looked like early campaigning before parliamentary and presidential polls. US President Barack Obama earlier announced a last-ditch deal to cut about $2.4 trillion from the U.S. deficit over a decade, avoid a crushing debt default and stave off the risk that the nation's AAA credit rating would be downgraded. The deal initially soothed anxieties and led Russian stocks to jump to three-month highs, but jitters remained over the possibility of a credit downgrade. "Thank god," Putin said, "that they had enough common sense and responsibility to make a balanced decision." But Putin, who has often criticized the United States' foreign exchange policy, noted that Russia holds a large amount of U.S. bonds and treasuries. "If over there (in America) there is a systemic malfunction this will affect everyone," Putin told the young Russians. "Countries like Russia and China hold a significant part of their reserves in American securities ... There should be other reserve currencies." U.S.-Russian ties soured during Putin's 2000-2008 presidency but have warmed significantly since his protégé and successor President Dmitry Medvedev responded to Obama's stated desire for a "reset" in bilateral relations.

(Reuters) - The United States stepped back from the brink of default on Tuesday but congressional approval of a last-ditch deficit-cutting plan failed to dispel fears of a credit downgrade and future tax and spending feuds. President Barack Obama and lawmakers from across the political divide expressed relief over the hard-won compromise to raise the country's borrowing authority after weeks of rancorous partisan battles. Nevertheless, U.S. stocks tumbled, turning negative for the year, as investors shifted their attention to the increasingly grim state of the U.S. economy and the potential for a downgrade of America's gold-plated debt rating. That risk grew when one of the three major ratings agencies said it was affirming the U.S. government's AAA-rated sovereign debt but slapping it with a negative outlook. The announcement by Moody's Investors Service after U.S. markets closed could lead to a downgrade within 12 to 18 months. That could raise borrowing costs for U.S. companies and consumers as the economy risks slipping back into recession. The Senate's approval by 74-26 votes of the $2.1 trillion deficit-reduction plan warded off the immediate specter of a catastrophic U.S. debt default. The bill passed the Republican-controlled House of Representatives on Monday. Obama immediately signed it into law, lifting the $14.3 trillion debt ceiling with just hours to spare before the government was due to run out of money to pay all its bills.

Employment in the U.S. nonfarm private business sector rose 114,000 (vs. estimates of +100k) from June to July on a seasonally adjusted basis, according to the latest ADP National Employment Report. The estimated advance in employment from May to June was revised down modestly to 145,000, from the initially reported 157,000. Employment in the service-providing sector rose by 121,000 in July, marking 19 consecutive months of employment gains.Employment in the goods-producing sector fell by 7,000 in July, the second decline in three months. Manufacturing employment decreased 1,000 in July, which has seen growth in seven of the past nine months. Employment on small payrolls (up to 49 workers) rose 58,000 in July, while employment on medium payrolls (50 to 499 workers) rose 47,000. Employment on large payrolls (500 or more workers) rose a smaller 9,000. Employment in the professional business services expanded by 55,000. Growth was also experienced in the education and healthcare sector by 48,000. Employment in the construction industry declined 11,000 in July, the third consecutive monthly decline, bringing the total decrease in construction employment since its peak in January 2007 to 2,135,000. Employment in the financial services sector decreased 1,000 in July, bringing the total employment decrease for that same period to 687,000. Today’s ADP National Employment Report suggests that employment continued to advance at a moderate pace in July.This gain of employment growth is moderately above the consensus forecast for Friday’s jobs number from the U.S. Bureau of Labor Statistics, and this pace of job creation usually implies a steady unemployment rate. However, employment is decelerating. Since February, the three-month percent change has declined every month, from 0.60% then to 0.27% in July. The slowdown in employment makes more sense in light of last week’s revised GDP numbers showing the economy grew slower late last year and this year than initially reported.

(Bloomberg) - Employers in the U.S. announced the largest number of job cuts in July in 16 months, signaling a labor market that’s struggling to improve. Planned firings climbed 59 percent from July 2010 to 66,414, according to figures released today by Chicago-based Challenger, Gray & Christmas Inc. Job-cut announcements were led by the pharmaceutical industry, which included drugmaker Merck & Co.’s plans to eliminate as many as 13,000 jobs. The figures follow other data showing consumers retrenching, manufacturing cooling and confidence waning. Employers in July probably boosted payrolls at a pace that failed to reduce the jobless rate, according to a Bloomberg News survey before a report in two days. “July marks the third consecutive increase we have seen in monthly job-cut announcements, which certainly seems to provide additional evidence that the recovery has stalled,” John A. Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement. “It has been a couple of years since we have seen this level of private-sector job cuts coming in a single month.” Compared with June, job-cut announcements increased 60 percent. Because the figures aren’t adjusted for seasonal effects, economists prefer to focus on year-over-year changes rather than monthly numbers. The pharmaceutical industry led the firings with 13,493 job cut announcements in July.