MBS Pricing Snapshot

- Headline PMI +54.2 vs 54.7 Consensus, 55.1 Previous
- Most internal components declined by several points
- Notably, the Employment component rose from 51.1 to 54.9
- Employment component highest since March
- Overall Business Activity lowest since June

"The NMI registered 54.2 percent in October, 0.9 percentage point lower than the 55.1 percent registered in September. This indicates continued growth this month at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 55.4 percent, which is 4.5 percentage points lower than the 59.9 percent reported in September, reflecting growth for the 39th consecutive month. The New Orders Index decreased by 2.9 percentage points to 54.8 percent. The Employment Index increased by 3.8 percentage points to 54.9 percent, indicating growth in employment for the third consecutive month. The Prices Index decreased 2.5 percentage points to 65.6 percent, indicating prices increased at a slower rate in October when compared to September. According to the NMI™, 13 non-manufacturing industries reported growth in October. The majority of the respondents' comments reflect a positive but guarded outlook on business conditions and the economy."

10yr yields traded under 1.68 and Fannie 3.0s moved over 105-00 earlier this morning, hitting levels not seen October 15th. An hour into the domestic session, MBS are still holding the 105's while 10's have edged up into the 1.69's, still lower than all but a few minutes of trading over the past three weeks.

In a general sense, Europe was the clear mover overnight with German Bunds rallying shortly after the open on a pick-up in Greece/Spain concerns. But domestic election front-running is also a potential factor as some consensus builds that an Obama victory is a "risk off " (and by consensus, we mean that we've heard it mentioned somewhere other than our list of hypothetical market movers)

A lot of the week comes down to the concept of "voting." Of course there's the presidential vote on Tuesday, but there are several key votes coming up in Europe as well. A key austerity package vote on Wednesday, a smaller prelude to that in Greece today, a potentially pivotal Eurogroup meeting concerning Greece on Thursday and a more important Troika report next week are all market-moving considerations for Europe.

Whether bond markets are more interested in trading the election outcome (or perceived election outcome in advance of it being a known quantity), or the various uncertainties in the EU, is tough to know for now. But not only will it get progressively easier to know as the shoes start dropping, they're both bond-market-positive for now.