MBS Pricing Snapshot

* Headline PMI 49.8 vs 50.2 consensus
* New Orders 48.0 vs 47.8 last time
* Employment 52.0 vs 56.6 last time
* Employment Index lowest since 12/09

The PMI registered 49.8 percent, an increase of 0.1 percentage point from June's reading of 49.7 percent, indicating contraction in the manufacturing sector for the second consecutive month, following 34 consecutive months of expansion. The New Orders Index registered 48 percent, an increase of 0.2 percentage point from June and indicating contraction in new orders for the second consecutive month, but at a slightly slower rate. Both the Production Index and the Employment Index remained in growth territory, registering 51.3 percent and 52 percent, respectively. The Prices Index for raw materials registered 39.5 percent, an increase of 2.5 percentage points from the June reading of 37 percent, indicating lower prices on average for the third consecutive month. A growing number of comments from the panel this month reflect a slowdown in their businesses and general concern over increasing economic uncertainty.

US Treasuries were choppy within a range overnight but have weakened in to the inception of the domestic session. Rather than attribute the weakness to any specific developments, we're seeing this morning's slide as having more to do with the same old "follow German Bunds overnight" routine in addition to a relatively defensive stance, seeking neutrality ahead of potentially underwhelming FOMC Announcement.

10yr yields traded inside yesterday's range all night and continue to do so this morning although at 1.5137, they're close to the upper boundaries. Fannie 3.0 MBS opened right in the middle of yesterday's range, followed Treasuries into weaker territory, and have held supportively inside y'day's lows so far. Bond markets look to be dealing with a bit of volatility ahead of the 9:30am cash open for equities.

Volume has been lighter than average so far, with only 300k 10yr Futures contracts having gone through so far. Next up, we'll get ISM Manufacturing data at 10am, but the focus remains on the FOMC Announcement at 2:15pm.

ƒ- Slowest rise in new orders since September 2009, as new export work falls further in July ƒ

- ƒ Investment goods producers continue to report weakest improvement in operating conditions

Summary: Growth of the U.S. manufacturing sector slowed to its weakest pace in nearly three years in July, according to the final Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™).

At 51.4, down from the flash estimate of 51.8 and below June’s reading of 52.5, the PMI hit a 34-month low and signalled only a modest expansion in July.

PMI index readings above 50.0 signal an increase or improvement on the prior month, while readings below 50.0 indicate a decrease.

Employment in the U.S. nonfarm private business sector increased by 163,000 from June to July, on a seasonally adjusted basis. The estimated gain from May to June was revised down slightly, from the initial estimate of 176,000 to 172,000.

Employment in the private, service-providing sector expanded 148,000 in July after rising a revised 151,000 in June. The private, goods-producing sector added 15,000 jobs in July. Manufacturing employment rose 6,000 this month, following a revised increase of 9,000 in June.

Employment on large payrolls—those with 500 or more workers—increased 23,000 and employment on medium payrolls—those with 50 to 499 workers—rose 67,000 in July. Employment on small payrolls—those with up to 49 workers—rose 73,000 that same period. Of the 67,000 jobs created on medium-sized payrolls, 4,000 jobs were created by the goods- producing sector and 63,000 jobs were created by the service-providing sector.