Chicago PMI printed at 9:45. It was much much better than expected, led by gains in the new orders index and production index (short term positives) The prices paid index on the other hand fell 2.2 points and the employment index fell 2.1 points (long term negative). Both of these metrics are on the Fed's "WE NEED MORE QE" checklist.

Here is a quick recap...

09:45 30Sep10 RTRS-CHICAGO PURCHASING MANAGEMENT INDEX 60.4 IN SEPT (CONSENSUS 55.9) VS 56.7 IN AUGUST
09:45 30Sep10 RTRS-CHICAGO PURCHASING MGMT NEW ORDERS INDEX 61.4 IN SEPT VS 55.0 IN AUGUST
09:45 30Sep10 RTRS-CHICAGO PURCHASING MANAGEMENT PRICES PAID INDEX 55.0 IN SEPT VS 57.2 IN AUGUST
09:45 30Sep10 RTRS-CHICAGO PMI EMPLOYMENT INDEX 53.4 IN SEPT VS 55.5 IN AUGUST
09:45 30Sep10 RTRS-CHICAGO PURCHASING MANAGEMENT PRODUCTION INDEX 64.3 IN SEPT VS 57.6 IN AUGUST
09:46 30Sep10 RTRS-TABLE-Chicago PMI index 60.4 in Sept vs 56.7 in Aug

Market Reaction...

Stocks rallied on but price action is getting more two way now as traders book profits into the session highs.  S&Ps are currently +7.75 at 1143.00.

Month-end extensions aren't doing much to help  TSYs or MBS this morning. Dealer longs look to be too long in both markets after three oversubscribed TSY auctions and a rush of MBS selling this week.

The 10yr note is almost 10bps higher than it was at the NY open. MBS prices are lower and yield spreads are wider. The bid for MBS is still M.I.A. Three support levels have been broken...

The Fed has a scheduled POMO today, they are buying TSYs maturing between 02/15/2021 and 08/15/2040. This combined with a rapid sell off/lowering of asking prices should draw in real$ buying at the price lows and fast$ buying at the spread wides.  Secondary is probably buying back some hedges as well...

Look for a bounce soon. If you didn't lock yet, don't panic, the outer limits of the range are providing support.