"The Obama administration and a federal housing regulator are considering a program to draw private investment back into the government-dominated mortgage market by having Fannie Mae and Freddie Mac sell slices of securities that wouldn't carry a federal guarantee but would pay a higher interest rate than current mortgage-backed bonds..."

(Reuters) - U.S. business inventories rose slightly more than expected in August and the government said July inventories gained more than initially estimated, providing more support for economic growth during the quarter.

Inventories climbed 0.5 percent in August, matching the pace of growth in July that was initially estimated at 0.4 percent, the Commerce Department said on Friday.

Economists had expected inventories, a key component of gross domestic product, to rise 0.4 percent in August. The ratio between business inventories and sales was unchanged at 1.28.

Business sales increased 0.3 percent, decelerating from growth of 0.7 percent in July. (Reporting by Jason Lange, Editing by Andrea Ricci)

The preliminary reading on October Consumer Sentiment came in at 57.5 versus an expectation of 60.2, and a previous reading of 59.4 in September. The most notable drop was in the "consumer expectations" component of the survey, which at 47.0, is at it's lowest level since 1980. It was 49.4 last month MBS and Treasuries responded favorably, but haven't broken past today's previous best levels yet. Business Inventories are coming out presently.

What began as a weak morning for bond markets has only become weaker after the better-than-expected Retail Sales data. Fannie 3.5's briefly hit 100-24, just a few ticks higher than the 100-21 low from 9/16.

That said, MBS and TSYs are doing a good job of holding their ground near those lows for the moment. Fannie 3.5's are down only 5 ticks on the day at 100-29 and 10yr yields are now at 2.246 after being as high as 2.262.

Its still a bit too early to tell how things will shake out before rate sheets, but the slight hints of ground holding are promising for now, at least as far as damage mitigation is concerned. There's still more data on the way with Consumer Sentiment at 955am and Business Inventories at 10am. Apart from that, the stock lever could be an even bigger factor today.

U.S. import prices rose 0.3 percent in September, the U.S. Bureau of Labor Statistics reported today. Over the past five months, import prices have shown little net change. Export prices increased 0.4 percent in September after advancing 0.5 percent the previous month.

(Reuters) - U.S. retail sales rebounded in September at their fastest pace in seven months as consumers shook off some of their concerns about stock market drops and political gridlock, potentially giving new momentum to the weak economic recovery.

Sales rose 1.1 percent from a month earlier, boosted by strong auto purchases, the Commerce Department said on Friday. The reading beat the median forecast in a Reuters poll for a 0.7 percent rise. Sales growth during August was revised upward to 0.3 percent.

Consumer spending accounts for about two thirds of U.S. economic activity, and the Commerce Department data suggests growth at the end of the third quarter might have been stronger than previously thought.

Excluding autos, sales increased 0.6 percent in September, above forecasts for a 0.3 percent gain.

Sales of motor vehicles and parts rose 3.6 percent, the biggest gain since March 2010. That increase -- along with higher sales of furniture, gasoline and electronics -- made up for lower grocery store and building material sales. Spending at restaurants and bars also rose. (Reporting by Jason Lange, Editing by Andrea Ricci)