Overall apps decreased 5 pct last week. And while the weekly changes make it seem like a 5.5 pct decrease in refi's is worse than the 3.8 pct decrease in purchases, the refi index rose at an eye-watering 23.1 pct in the previous week while purchases have merely been bleeding out a slow and painful death. There's no way around the fact that if you trust the MBA numbers, the purchase market is just awful, ugly, stagnant, and depressing. But whereas the purchase index stands slightly lower than the mid-point of it's 2011 range, this week's reading on the refi index shows it over 2500 for one of only 6 other weeks this year, and at 2578, within striking distance of the highest mark of 2011 2883.

Does it even make sense to do another update/alert on MBS Prices? After all, if this morning is any indication, they could be vastly different by the time you read this! All within just over an hour, MBS lost a quarter of a point and gained it all back. Fannie 4.0's hit 100-10 during this morning's sell-off, but are now back up to 100-18 (8 ticks - quarter point - 8/32nds). That puts them at their highs of the morning and seemingly blocked by the 100-18+ level which has acted as a pivot point on numerous occasions in the recent past. Although this rally should make for better initial rate sheets, the volatility involved in getting here will likely keep those rate sheets a bit more delayed vs average release times.

Fannie 4.0's sold-off directionally after the CBO notes that the Deomcratic deficit proposal falls short of promises/expectations, now at 100-11. 10yr notes are at 2.99. The extent to which that news is contributing to the sell-off is questionable though, especially given the relatively flat yield curve day-over-day. 30's are no worse than any other part of the curve, and they probably would be if the CBO news was the key driver. Other considerations include strong technical profit-taking indications discussed yesterday, as well as auction concessions. But regardless of causality, the important part is the 100% retracement to yesterday's weakest levels. That means a likely delay in initial rate sheets, or in rare cases where rates were available before, say, 8:40am, a possible reprice for the worse.

Despite a big miss in the Durable Goods Orders report, MBS and Treasuries are little changed from the weaker day-over-day levels from before the report. To quantify the overnight and post-data changes, Fannie 4.0's were as high as 100-24 yesterday afternoon and came in the door at 100-17 this morning. Since then and econ data notwithstanding, they've traded up and down a few ticks and are currently back at 100-17. In Treasuries, the past few days suggest a short term pivot at 2.97 which provided support for weaker 10yr notes this morning after hitting 2.94 yesterday. The current mark is 2.966. There's no more significant data this morning, but 1pm will bring the 5yr Note Auction Results followed by the Beige Book at 2pm.

(CSPAN) - The proposed debate and vote on debt reduction legislation that House Speaker John Boehner (R-OH) proposed will have to wait until at least Thursday to be debated on the House floor. The Congressional Budget Office released an analysis of Speaker Boehner’s plan. It says it cuts $850 billion over ten years, less than the $1.2 trillion Boehner claimed it would cut. The Speaker and others are rewriting the bill so there are more cuts to bring the number closer to the $1.2 trillion, which delayed the debate. Additionally, Senate Majority Leader Harry Reid (D-NV) also postponed debate of his debt ceiling proposal until Thursday. Media reports say he is waiting to see the outcome of House Speaker John Boehner’s (R-OH) bill in the U.S. House. Some Republicans have come out in opposition to Boehner’s plan to cut spending and lift the debt ceiling in two parts. Rep. Jim Jordon (R-OH), a conservative member of Congress, is one of several House members who said he would not support it. He said it does not cut enough spending and he is opposed to creating a bipartisan committee to determine additional savings. The House Republican conference is meeting this morning and more details about the path forward could become apparent following that meeting. Speaker Boehner’s proposal would lift the debt ceiling by $1 trillion, cap discretionary spending and require both legislative bodies to vote on a balanced budget amendment to the U.S. Constitution. Senator Reid said Tuesday that Boehner’s bill is “dead on arrival” in the Senate. He also said he is “open to compromise,” leaving the door open for an alternative bill to be drafted, but time is running low before the August 2nd deadline imposed by Treasury Secretary Timothy Geithner. Reid’s proposal, which has not gained noticeable Republican support, would cut spending by $2.7 trillion dollars and lift the debt ceiling enough to last through 2012.

(Reuters) - A downgrade of the United States' AAA credit rating is a bigger risk than a default and could over time add up to 0.7 percentage point to bond yields, members of a U.S. securities industry group said on Tuesday. "That's on the order of $100 billion over time that we will add to our funding costs," said Terry Belton, global head of fixed income strategy at JPMorgan Chase. He was speaking on a conference call organized by the Securities Industry and Financial Markets Association, also known as SIFMA. Over time, he said Treasury yields could rise 60 to 70 basis points on a credit downgrade -- "a huge number because we're talking a permanent increase in borrowing costs." That would make it more costly for consumers and business to borrow money and could land the economy back in recession. A default on the country's obligations would be even more disruptive, call participants said, and could ripple across financial markets, but was less likely. The U.S. government hit its $14.3 trillion borrowing limit in May and the Treasury said it will run out of money to pay its obligations if the limit is not raised by Aug. 2. An increase has been held hostage to political squabbling. Republicans in Congress have refused to lift the debt ceiling without a long-term deficit reduction plan but remain at odds with the White House over the proper mix of spending cuts and tax increases needed to do it.

(Reuters) - New orders for long-lasting U.S. manufactured goods fell unexpectedly in June, weighed down by weak receipts for transportation equipment, a government report showed on Wednesday. The Commerce Department said durable goods orders dropped 2.1 percent, reversing May's downwardly revised 1.9 percent increase. Durable goods are items ranging from toasters to aircraft that are meant to last three years or more. Economists polled by Reuters had expected orders to rise 0.3 percent last month after May's previously reported 2.1 percent increase. Durable goods orders are a leading indicator of manufacturing. Though orders tend to be volatile, last month's unexpected decline could add to fears of a slowdown in factory activity and support views that the economy will not emerge quickly from its current soft patch. Manufacturing has been the bright spot in the economy, whose recovery has faltered since the start of the year. Data on Friday is expected to show the economy grow at a 1.8 percent annual rate in the second quarter, according to a Reuters survey, after expanding 1.9 percent in the January-March period. Orders last month were pulled down by an 8.5 percent drop in orders for transportation equipment. That reflected a 28.9 percent plunge in aircraft orders. Boeing received 48 aircraft orders, up from 27 in May, according to information posted on the plane maker's website. However, the bulk of the orders were for its less expensive models. Motor vehicle orders dropped 1.4 percent as manufacturers continue to deal with disruptions to production following the earthquake in Japan. Motor vehicle orders rose 0.3 percent in May. (Reporting by Lucia Mutikani, Editing by Andrea Ricci)

The bond market remains steady despite continued uncertainty regarding the U.S. debt ceiling and a possible sovereign credit downgrade. The benchmark 10-year Treasury note yield is one basis point higher at 2.962%, while the two-year is two basis points higher with a 0.410% yield and the 30-year yield is unchanged at 4.287%. Mortgages are however underperforming. The Fannie Mae 4.0 MBS coupon is -4/32 at 100-17. In equities, the S&P 500 looks to open 3.25 points lower at 1,323 and Dow futures are down 7 points at 12,426. "Market focus will remain on the U.S. until this crisis is resolved," said economists at BMO Capital Markets. "However, markets haven't forgotten about Europe's problems, as Spanish and Italian yields are up sharply across the curve. Spain 10-yrs are back above 6%, from a post-bailout low of 5.72%, while Italy 10-yrs are up to 5.76% from a post-bailout low of 5.34%." New economic data from Europe was mixed: Euro area Q1 GDP was confirmed at 0.8% quarter over quarter, but Germany's industrial production gauge missed expectations by dropping 0.6% in April following a 1.2% climb a month before. Moreover, German exports declined 5.5% in April, a substantial drop following a 7.2% increase in March.