Prior to 8:30 this morning the 10 yr note quiet but down 4/32 to 2.05%, mortgages down 4/32 (.12 bp). At 8:30 Oct CPI was -0.1% against forecasts of unch; the core (ex food and energy) +0.1% in line with estimates. Yr/yr overall CPI +3.5%, ex food and energy +2/1%. The slightly better inflation report turned the 10 to +6/32 to 2.03% -1 bp on the day, and mortgage prices up 1/32 (.03 bp). Early trade in stock indexes were weaker, the DJIA down 88 points. U.S. index futures and the euro fell after the Bank of England said failure to resolve Europe's debt crisis may have "significant adverse effects" on the economy.

Europe continues to dictate to markets; about any sneeze from anyone in the region has some kind of reaction in global markets. Italian Prime Minister-designate Mario Monti will announce his new government today. Two days of consultations with parties, unions and employers left him "convinced" that Italy can overcome the crisis, he said yesterday. Italian bonds gained for the first day in three, with the 10-year yield falling 15 basis points to 6.92%. Italy's deficit, at 4.6 percent of gross domestic product last year, is about the same as Germany's, lower than that of France and less than half the U.K.'s, at 10.3 percent. Still, its debt load is bigger than that of Spain, Greece, Ireland and Portugal combined. German Chancellor Angela Merkel said Germany is prepared to cede some national sovereignty to the European Union to achieve closer economic and political ties.

Treasuries are on hold the last couple of weeks with little change in interest rates; the 10 yr note between 2.10% and 2.00% while mortgage prices equally flat. News out of Europe at the moment is generally constructive, at least no more shocks in the last few days. Still have a safe haven trade in US treasuries however, there is really no end in sight for Europe's debt problems. French banks troubled, Germans resisting additional support although Merkel sounded somewhat conciliatory but we have heard plenty of that over the last year.

Oct industrial production at 9:15 was better than estimates, up 0.7% with estimates at +0.4%, however Sept production was revised to -0.1% frm +0.2%. Oct factory usage increased to 77.8% frm 77.3% in Sept also better than expected. There was little reaction to the better data in stock and bond markets. Europe still trading with weaker markets, US is like the faithful dog that never leaves the master's side and these days Europe is the master and the US the faithful pup.

Crude oil this morning breached $100.00/barrel; at 9:15 $100.91 +$1.54 (see below for 9:50 level). Gold prices falling, down to $1760.00 -$22.00.

At 9:30 the DJIA opened very weak, down 130; the 10 yr at 2.02% -2 bp and mortgage prices +5/32 (.15 bp) on 30s.

At 10:00, a few minutes ago the Nov NAHB housing market index, expected at 18 increased to 21 the highest in a very long time; Oct index revised from 18 to 17.

As long as the 10 yr fails to break 2.00% the opportunity for lower mortgage rates is absent. MBS markets have been flat for over two weeks as has the 10 yr. Investors still hold somewhat of a bullish bias as a safe haven against the ever changing situation in Europe but for the last week or so there have been no additional shoes to drop. No shocks but no actual progress that is aimed at the banks in Europe that are in as bad if not worse shape than US bans found themselves in 2008 when Lehman failed and the sub prime bubble exploded. US banks were extremely leveraged just as Europe's banks are now.