UMBS are up 14 bps on the day.   Not huge, but at least it’s green.

Bonds were already slightly stronger in the overnight session with most of the gains arriving with Tokyo’s opening trades.  This wasn’t stunning considering the base case scenario for sideways momentum between now and early December.

There’s been just a bit more improvement after the 8:30am econ data with Jobless Claims being the most likely culprit (though the drop in Philly Fed prices could be helping).

Jobless Claims  = 231k vs 220k f’cast     [218k prev]

Continued Claims = 1865k vs 1847k f’cast    [1833k prev]

Philly Fed Index =  -5.9 vs -9.0 f’cast/prev

Philly Fed Prices Paid =         14.8 vs 23.1 prev

Import Prices =  -0.8 m/m vs -0.3 f’cast   [0.4 prev].   -0.2% y/y

Wednesday’s moderate selling in the bond market makes for tougher lock/float decisions ahead–especially in light of the fact that the calendar is very light on likely market movers between now and the first full week of December.  10yr yields at 4.55% could prove to be close to the central tendency of a range that is a bit narrower than we’re used to.

Being closer to recent lows would argue for an increased lock bias.  Being closer to recent highs (4.66% from last week, for instance) allows for more subjective decisions (provided were weren’t losing ground due to objective data/events/news).

Industrial production fell 0.6% in October, according to the Federal Reserve. Manufacturing production fell 0.7%. Capacity Utilization fell to 78.9% which is well below its long-term average. This confirms the readings we have been getting out of the ISM surveys – manufacturing is struggling.

Hot on the heels of cautious guidance out of Home Depot and Target, Wal Mart sounds the alarm on consumer spending. The CFO said in an interview on CNBC that Wal Mart has been “leaning heavily into promotions,” which should be taken to mean “cutting prices to move the merchandise.”

Homebuilder sentiment fell in November as rising interest rates dampened affordability.

Wednesday’s bond market losses rained on Tuesday’s post-CPI parade.  Justification was adequate, with Retail Sales coming in 0.2 higher than expected, but the implications for the near future were uncertain.  Were bonds only reacting to the data or was the CPI rally overdone to some small extent?  Today’s session helped answer those questions.  All it took was a modest miss in Jobless Claims and a few other 2nd tier reports for bonds to fully erase Wednesday’s losses.

UMBS 6.5 ended the day up 33 bps at 101.23.   Ginnie Mae Bonds about the same.

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