MBS Pricing Snapshot

- Index +5.2 pct vs +0.8 pct consensus
- From 99.6 in Sept to 104.8 in Oct, highest in more than 5 years

- Pending home sales rose strongly in October with mixed regional results, according to the National Association of Realtors.

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, increased 5.2 percent to 104.8 in October from an upwardly revised 99.6 in September and is 13.2 percent above October 2011 when it was 92.6. The data reflect contracts but not closings.

Lawrence Yun , NAR chief economist, said buyers are responding to favorable market conditions. "We've had very good housing affordability conditions for quite some time, but we're seeing more impact now from steady job creation, and rising consumer confidence about home buying now that home prices have clearly turned positive."

Outside of a few spikes during the tax credit period, pending home sales are at the highest level since March 2007 when the index also reached 104.8. On a year-over-year basis, pending home sales have risen for 18 consecutive months.

Bond markets are exuding quite a bit of tension at the moment. Last week's sell-off was met with a decent push back this week, but it's been a weird, bumpy, unconvincing ride back to levels that clearly shied away from making any bold, bullish statements. Namely, 10yr yields were clear to avoid a technical break below 1.60 yesterday, which has been a prominent horizontal inflection point during November and also coincided yesterday with the upper limits of a bullish trend that had been intact from mid-October through last week.

When the price or yield of anything chartable breaks out of a trend and "returns to the scene of the crime" for a bounce on the other side of that trend-line, it builds a case that we've witnessed a meaningful breakout. But perhaps equally compelling are the few instances of supportive ceilings for bond yields with the most notable recent example seen in the overnight session at 1.644.

A moderately threatening onslaught of positive European data and auction results lifted the Euro and stock markets overnight, but German Bunds and US Treasuries--though obviously under pressure, managed to regularly defend horizontal levels (1.644 as noted in US 10's, and and even more highly technical series of bounces at 1.398 in Bunds).

It's not like the technical landscape of German Bunds at 1.398 is some epic development worthy of stopping the presses, but in the case of the overnight session, helps to provide a counterpoint to the concerns that arise from considering the technical resistance encountered yesterday.

The last time S&Ps were this high, 10yr yields were closer to 1.75, so bond markets are obviously trying to fight off the same level of emotional reaction to Fiscal Cliff headlines, but it's hard to know how good of a job they'll continue to do at this, especially after this traditionally supportive "month-end" week.

For now, both MBS and Treasuries have been able to hover around unchanged levels so far this morning after some volatility surrounding the GDP and Jobless Claims releases at 8:30. Stocks have opened slightly higher, and after hitting their own technical resistance at overnight highs, are just now edging higher. If that "risk-on" trend continues, it could reinforce the challenging landscape facing bond markets

Fannie 3.0s are currently exactly unchanged from 5pm levels at 105-02 and 10yr yields are over a bp higher than 3pm levels, but similarly unchanged from 5pm levels at 1.6318. Next economic data is Pending Home Sales at 10am, followed by another Fed Twist buyback at 10:15-11:00, with the last of the week's Treasury Note auctions at 1pm this afternoon.

- Jobless Claims 393k vs 390k Consensus
- Previous week revised higher from 410k to 416k

- In the week ending November 24, the advance figure for seasonally adjusted initial claims was 393,000, a decrease of 23,000 from the previous week's revised figure of 416,000. The 4-week moving average was 405,250, an increase of 7,500 from the previous week's revised average of 397,750.

The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending November 17, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending November 17 was 3,287,000, a decrease of 70,000 from the preceding week's revised level of 3,357,000. The 4-week moving average was 3,296,250, an increase of 6,250 from the preceding week's revised average of 3,290,000.

- GDP +2.7 vs +2.8 consensus
- Final Sales +1.9 vs +2.5 consensus
- Consumer Spending +1.4, smallest rise since Q211
- Business Inventory change accounts for .77 of GDP

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.7 percent in the third quarter of 2012 (that is, from the second quarter to the third quarter), according to the "second" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.3 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.0 percent (see "Revisions" on page 3).

The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, federal government spending, residential fixed investment, and exports that were partly offset by negative contributions from nonresidential fixed investment and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased slightly.

The acceleration in real GDP in the third quarter primarily reflected upturns in private inventory investment and in federal government spending, a deceleration in imports, an acceleration in residential fixed investment, and a smaller decrease in state and local government spending that were partly offset by a downturn in nonresidential fixed investment and decelerations in exports and in PCE.