MBS Live: MBS Morning Market Summary
Once again a good portion of the day's movement was seen during the overnight session as Asian and Europe essentially made the opposite move from yesterday's overnight weakness.  At first glance, a preliminary Q3 GDP report that came in at +2.0 vs +1.7 expectations might have threatened said gains, but any weakness following the data was fleeting at best.  Bond markets really showed their hand here, we feel, as they gave almost no chase to the brief equities rally that followed GDP, perhaps alluding to the equanimity frequently associated with "month-end" trading (specifically the first three days of next week).  Or perhaps it was just time to bounce after having tested major technical levels yesterday and after corporate earnings poured a bit of cold water on the risk rally.  Either way, bond markets are in stronger territory and the gains have held reasonably well throughout the morning.  It may be slightly too early, but we're tempted to read this as confirmation of the cry: "let the pre-NFP range trade begin!"
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
104-20 : +0-12
FNMA 3.5
106-09 : +0-05
FNMA 4.0
106-31 : +0-02
FNMA 4.5
107-26 : +0-01
GNMA 3.0
106-01 : +0-11
GNMA 3.5
108-17 : +0-06
GNMA 4.0
109-07 : +0-03
GNMA 4.5
108-20 : +0-00
104-12 : +0-11
106-02 : +0-05
106-18 : +0-02
107-03 : +0-01
Pricing as of 11:07 AM EST
Morning Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribers this morning.

10:09AM  :  ECON: Consumer Sentiment Roughly In Line With Expectations
The final reading on Consumer Sentiment for October fell just slightly from the 83.1 preliminary figures, but at 82.6, is roughly in line with the 83.0 consensus. A quick run-down of the components:
  • Current Conditions: 88.1 vs 89.0 consensus
  • Expectations 79.0 vs 79.8 consensus
  • 12-Month Outlook 96 vs 97 Previous
  • 1yr Inflation Expectations 3.1 pct, unchanged
Despite ebbing a bit from the last preliminary reading, the 82.6 final reading is the highest since September 2007.

Market reaction has been generally positive for bond markets and negative for equities, though both of those moves (lower in stock prices and Treasury yields, higher in MBS prices) have bounced before getting back to their extremes from the overnight session.
9:32AM  :  ALERT ISSUED: Strong Overnight Session But Slightly Weaker Following GDP
10 Treasuries are roughly 0.8bps higher since the 8:30am GDP release while Fannie 3.0s are a tick off their highs at 104-17 vs 104-18 -- not huge movements as far as post-economic-data volatility is concerned. S&P futures rose 7 points at their best (from 8:30am levels), but that gain has eased to 5 points currently. Bottom line, GDP hasn't been a barn burner.

The overnight session was compelling! It was highly active and essentially offered a mirror image of yesterday's session with Asian hours kicking off a bigger than normal "risk-off" trade vs yesterday's "risk-on." European hours again contributed a greater than normal amount of volume and volatility, but this time in a friendlier direction. 10yr yields made it all the way into the 1.75's before beginning their more conservative approach to the GDP data.

Given the fairly conservative reaction to GDP, that leaves the overnight session as the most informative event so far today. It shows a certain level of conviction on the part of bond markets to hold the weak end of their recent range as support heading into the traditionally supportive "last few days of the month" which arrive at the beginning of next week. From there it's fair to assume that the "next big thing™" will be Friday's NFP.

Next up is Consumer Sentiment at 9:55am--in and of itself, not the report that's going to make or break the session, and with yesterday's overnight highs at 1.85% in 10yr yields, there's quite a bit of room to run without bond markets making too big of a bearish statement. 1.75% is the flip side that likely provides resistance, or at least pause for reflection if the late morning and afternoon trade happens to evolve positively.

What we're saying here is that the range for the rest of the day is probably set, and only breaks outside that range would be significant in the bigger picture. Smaller picture, there's a clear pivot in MBS at 104-13 which marks both yesterday's highs and today's lows. Breaking below that would raise concerns for negative reprices (assuming the price action doesn't go all wonky between now and the time the rest of rate sheets make it out). Anything above that is gravy, especially a marked break above 104-19 which was a clearly defined pivot point between Tuesday and Wednesday.
8:44AM  :  ECON: GDP Rises 2.0 Percent Vs 1.7 Percent Expectation
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 2.0 percent in the third quarter of 2012 (that is, from the second quarter to the third quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.3 percent.

The Bureau emphasized that the third-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see box below). The "second" estimate for the third quarter, based on more complete data, will be released on November 29, 2012.

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

The acceleration in real GDP in the third quarter primarily reflected an upturn in federal government spending, a downturn in imports, an acceleration in PCE, a smaller decrease in private inventory investment, an acceleration in residential fixed investment, and a smaller decrease in state and local government spending that were partly offset by downturns in exports and in nonresidential fixed investment.
Live Chat Featured Comments
A recap of the featured comments from the MBS Live Dashboard's Live Chat feature, utilized by hundreds of industry professionals each day.

Matthew Graham  :  "None of the internals look to be out of whack at first glance"
Matthew Graham  :  "3.0 is king at the moment"
William Hansen  :  "GM. Which MBS is a better indicator to follow for the 30 yr? I have been following 3.0. Should have follow another one?"
Scott Valins  :  "http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm"
Scott Valins  :  " Real federal government consumption expenditures and gross investment increased 9.6 percent in the third quarter, in contrast to a decrease of 0.2 percent in the second. National defense increased 13.0 percent, in contrast to a decrease of 0.2 percent. Nondefense increased 3.0 percent, in contrast to a decrease of 0.4 percent. Real state and local government consumption expenditures and gross investment decreased 0.1 percent, compared with a decrease of 1.0 percent."
Scott Valins  :  "so w/o fed spending were 1.3?"
Matthew Graham  :  "RTRS - US Q3 EXPORTS -1.6 PCT, FIRST DECLINE SINCE Q1 2009 (Q2 +5.3 PCT); IMPORTS -0.2 PCT (Q2 +2.8 PCT) "
Matthew Graham  :  "RTRS- US ADVANCE Q3 GDP DEFLATOR +2.9 PCT (CONS +2.0 PCT), Q2 +1.5 PCT "
Matthew Graham  :  "RTRS- US Q3 CONSUMER SPENDING +2.0 PCT (Q2 +1.5 PCT), DURABLES +8.5 PCT (Q2 -0.2 PCT) "
Matthew Graham  :  "RTRS - US ADVANCE Q3 GDP +2.0 PCT (CONSENSUS +1.9 PCT), Q2 +1.3 PCT; FINAL SALES +2.1 PCT (CONS +1.5 PCT), Q2 +1.7 PCT "
Victor Burek  :  "just taking a breather before the move higher"
Nathan Stotlar  :  "Green, but fading. Yep it's Friday!"
Peter Bethke  :  "nice to see green on the 10 this AM"

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