MBS performance is off to a positive start in October. Lehman's MBS Index records 18 basis points in excess return in the first two days of trading. This compares to -3 basis points in the ABS Index, +2 basis points in the CMBS Index and +8 basis points in the Corporate Index. For September, MBS ended up in last place in this group after leading for a good part of the month. For September, the MBS Index outperformed Treasurys by 18 basis points versus +47 basis points for ABS, +65 basis points for CMBS and +21 basis points for corporate debt.

MBS volume was running slightly below normal in the first part of last week because participants were waiting for employment news through the ADP Employment report, ISM Non-Manufacturing and especially Friday's employment report. Information from ADP and ISM suggests a rebound in non-farm payrolls employment from August's decline of 4,000. Currently, observers expect to gain 115,000 in nonfarm payrolls for September, and for the unemployment rate to inch up to 4.7% from 4.6% in August.

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