MBS Pricing Snapshot

- PMI 49.9 vs 51.0 Consensus
- New Orders 50.6 vs 47.4 last month
- Employment 50.3 vs 52.0 last month

"The Chicago Purchasing Managers reported October's Chicago Business Barometer idled, up just 0.2 to a still contractionary 49.9. Business Activity measures reflected weakness in five of seven indexes, most notably as the rate of expansion in Production and Employment slowed while New Orders stalled near neutral and Order Backlogs remained in contraction."

BUSINESS ACTIVITY:

• EMPLOYMENT: 33 month low;
• INVENTORIES: slipped into contraction;
• PRICES PAID: inflation slowed a bit;

So far, on this first morning back on line after the unexpected 1.75 day break, bond markets have maintained a high level of composure. Some of that composure is to be expected given the assumed mini-glut of month-end buying needs that were not able to be satisfied yesterday and for most of Monday, but that alone wouldn't be enough to guarantee a positive day for bond markets today.

Indeed, the first move was higher in yield during the overnight session as risk markets made an abrupt move higher at the start of the European session. But once domestic accounts began trading early this morning, the cards being laid down showed an increasingly strong hand. 10yr yields moved from overnight highs around 1.76 in the 6am hour, down to 1.72 by 9:30am.

MBS opened up right in line with Friday's latest latest levels with Fannie 3.0's coming in at 104-22. They've since ground steadily higher and are currently up 5 ticks on the morning at 104-27.

This morning's economic data hasn't had much of an impact--especially the 8:30am Employment Costs as markets were clearly focused primarily on tradeflows at that time. Things have ticked just a touch weaker after Chicago PMI despite the lower-than-expected reading, but we still wouldn't assume the price action is overly connected to the economic data. Speaking of which, there's no more data on tap for today, so we'll watch flows and cross our fingers that month-end buying needs help things stay supportive. Definitely "so far so good," though.

- Employment Costs +0.4 vs +0.5 Consensus
- Wages/Salaries +0.3 vs +0.4 Consensus

Compensation costs for civilian workers increased 0.4 percent, seasonally adjusted, for the 3-month period ending September 2012, the U.S. Bureau of Labor Statistics reported today. Wages and salaries (which make up about 70 percent of compensation costs) increased 0.3 percent, and benefits (which make up the remaining 30 percent of compensation) increased 0.8 percent.