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Treasuries and mortgages turned nicely better yesterday afternoon after opening weaker in the morning; most lenders re-priced as MBS prices at the end of the day were 50 bp better than at 9:30. The 10 yr climbed to 2.08% early then fell to 1.95% and closed at 1.97% unchanged while the stock market rallied to push the DJIA +291 and the NASDAQ +86. Treasury 10-year note yields traded at less than 2% for a sixth day as Italy once again paid above 7% in its debt auctions and the European Central Bank failed to fully offset the extra liquidity created by its bond purchase program. Retail sales over the weekend were much stronger than what markets were expecting. The bond market was supported by comments from a few Fed officials that the Fed should think about increasing purchases of MBSs to keep rates low and hopefully support the housing sector that so far has not shown any progress.

This morning Sept Case/Shiller home price index was a little better than expected, down 0.6% for the 20 city and -0.4% for the 10 city price, forecasts were for a decline of 3.0% on the 20 city. Yr/yr the 20 city prices were down 3.6% while the 10 city down 3.3%. As usual it got very little attention from traders, nothing new; prices continue to fall.

At 9:30 the DJIA opened unchanged, the 10 yr note traded -9/32 at 2.00% +3 bp and mortgage prices -4/32 (.12 bp).

At 10:00 the Conference Board reported Nov consumer confidence index 56.0 frm 40.9 last month against forecasts of 44.0, the expectations index jumped to 67.8 frm 50.0. Strong increase in consumers' attitudes and the highest index since July. The reaction so far has been subdued, not much initial reaction to the better confidence readings.

Also at 10:00 the Sept FHFA home price index, expected unchanged, increased 0.9%; yr/yr -2.2%.

Today finance ministers will meet in Europe (again) in an effort to solve the impossible, the debt crisis contagion that is spreading through Europe like the Bubonic Plague. The 17-member monetary union meet in Brussels today to debate using their bailout fund, the Financial Stability Facility, to insure sovereign debt with guarantees. Europe 's stock markets are weaker this morning before the meeting to discuss insuring a portion of bonds issued by debt-stricken countries. Investors and financial markets are continuing to lose confidence in Europe's ability to stop the debt crisis contagion from spreading though the region and eventually to the US as Europe is sure to re-enter recession. The ECB failed to fully offset the extra liquidity created by its bond purchases for the first time in seven months, a sign of mounting tensions among euro-area banks. The ECB tries to drain bank liquidity in the same amounts it buys bonds from Italy and Spain; the offering today for 7 day term deposits didn't match up as euro banks did not bid enough to cover the bond buys. The ECB worrying about inflation wants to offset purchases with short term deposits from banks.

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