Although it's been another choppy morning for MBS and Treasuries, that choppiness is contained within an even narrower range than that of yesterday morning. Fannie 3.5's haven't been outside 100-29 on the low side or 101-03 on the upside.

That could soon change, however, as the stronger than expected Philly Fed data--although initially troublesome for bond markets--failed to push MBS lower than 100-29 and also didn't result in 10yr yields breaking higher than yesterday's last major high at 2.207. Yields have dropped into the 2.17's since then, and fairly directionally.

That should be a good thing for Fannie 3.5's currently testing to break out of the 101-03 range (and just having seen their first tick into 101-04 while this is being typed). Too soon to consider reprices for the better as some lenders aren't even out with rates yet, but if the current trend of reversal continues and if stocks fail to get off the ground, it could be possible later in the morning.

Existing-home sales were down in September on the heels of a strong gain in August, but remain well above a year ago, according to the National Association of Realtors.

Total existing-home sales1, which are completed transactions that include single-family, townhomes, condominiums and co-ops, declined 3.0 percent to a seasonally adjusted annual rate of 4.91 million in September from an upwardly revised 5.06 million in August, but are 11.3 percent above the 4.41 million unit pace in September 2010.

Lawrence Yun, NAR chief economist, said the market has been stable although at low levels, and there is plenty of room for improvement. “Existing-home sales have bounced around this year, staying relatively close to the current level in most months,” he said. “The irony is affordability conditions have improved to historic highs and more creditworthy borrowers are trying to purchase homes, but the share of contract failures is double the level of September 2010. Even so, the volume of successful buyers is higher than a year ago and is remaining fairly stable – this speaks to an unfulfilled demand.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.11 percent in September, down from 4.27 percent in August; the rate was 4.35 percent in September 2010.

Contract failures2 were reported by 18 percent of NAR members in September, unchanged from August; they were 9 percent in September 2010. Contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including home inspections and employment losses.

Responses to October's Business Outlook Survey suggest that regional manufacturing activity is showing signs of recovery, following several months of decline. The survey's indicators for activity, shipments, and new orders recorded positive readings after two months in negative territory. The diffusion index of current activity increased to 8.7 in October from -17.5 in September.

The broadest indicator of future activity remained positive and showed marginal improvement over its reading last month. The future general activity index increased to 27.2 in October from 21.4 in September.

This survey, which was started in 1968, gathers information on the manufacturing industry in the Third Federal Reserve District covering eastern Pennsylvania, southern New Jersey, and Delaware. The survey asks about the current pace of business in the participants' plants and their future expectations of business.

Several pieces of news led to a choppy and generally bond-bearish overnight session, although MBS and Treasuries were able to kick off NY Trading nearly unchanged versus 5pm yesterday.

As domestic players digested a document detailing some capabilities of the European rescue fund (proposal stages, but still...), as well well as the passing of Greek austerity measures (despite riots in the streets), not to mention the lowest 4-week moving average for Jobless claims, MBS Prices have deteriorated to the very weakest levels seen yesterday morning. Here's a run-down:

- Fannie 3.5's down 8 ticks to 100-30
- Fannie 4.0's down 4 ticks to 103-08
- Ginnie 3.5's down 6 ticks to 102-31
- 10 yr yields up 2.8 bps at 2.1853

Much like yesterday morning's comment: definitely weaker, but not the end of the world. Rampant uncertainty remains over the situation in Europe. US Economic data has yet to become decisively more upbeat, and benchmarks continue to trade very much within a range. We' also note that despite the red on the screens, it's somewhat comforting to see 10yr yields testing lower yields on their supportive bounces this week (2.19-2.21) versus last week (2.22-2.26). Conclusion = "volatility within ranges" until those ranges are broken.

Even so, MBS losses are MBS losses as far as rate sheets are concerned, and with about a quarter of a point missing from yesterday's close, so too might a quarter of a point be missing on rate sheets, but that's assuming prices stay here until lenders release.

In the week ending October 15, the advance figure for seasonally adjusted initial claims was 403,000, a decrease of 6,000 from the previous week's revised figure of 409,000. The 4-week moving average was 403,000, a decrease of 6,250 from the previous week's revised average of 409,250.

The advance seasonally adjusted insured unemployment rate was 2.9 percent for the week ending October 8, unchanged from the prior week's unrevised rate of 2.9 percent.

The advance number for seasonally adjusted insured unemployment during the week ending October 8 was 3,719,000, an increase of 25,000 from the preceding week's revised level of 3,694,000. The 4-week moving average was 3,722,500, a decrease of 7,500 from the preceding week's revised average of 3,730,000.