New Home Sales Data has been released.

After falling 11.2% to a pace of 309,000 annual sales in January, economists were expecting New Home Sales to rebound in February....that didn't happen.

In February, New Home Sales Fell 2.2% to a  Record Low 308,000 Annual Rate. This was much worse than consensus estimates which called for an annual pace of 320,000 units. January data was revised for the better from -11.2% at 309,000 units to -8.7% at 315,000 annualized sales.

New Home Supply rose to 9.2 months from 8.9 months in Jan.

The median price of new homes rose from $207,900 to $220,500.

The Northeast saw the biggest decline as sales dipped 20.0% over the course of February. The Mid-West was next in line with an 18.0% fall in sales activity. Both these two regions were hardest hit by winter snow storms...so market participants will be discounting the data a bit. What they should be doing is asking:

WHERE IS ALL THE PENT UP TAX CREDIT DEMAND? THERE IS ONLY ONE MONTH LEFT BEFORE EXPIRATION! READ MORE ABOUT HOME SALES AND THE TAX CREDIT

The reaction in rates markets:

The 3.625% coupon bearing 10 year TSY note didn't react. However, 10s were already off their high yields of the day....we moved sideways since then.

 The same thing goes for "rate sheet influential" MBS. After bottoming out at long standing 100-20 support, the FN 4.5 followed its benchmark guidance giver's direction and rebounded off the intraday lows. This happened before New Home Sales data hit screens.

The FN 4.0 is -0-11 at 97-21 yielding 4.228% and the FN 4.5 is -0-08  at 100-25 yielding 4.414%. The secondary market current coupon is 4.395%. The current coupon yield is +63.7 basis points over the 10 yr TSY note yield and 69.1 basis points over the 10 yr swap. (10yr swap spread still negative! and 3m/10yr implied vols +6bps)

Again, the FN 4.5 is off the lows of the day, but this happened before New Home Sales data was released.

Looking at the yield curve, the 7 year note is the worst performer with 5s and 10s not far behind. The Treasury will auction $42 billion 5 year notes, bid cut off is 1pm.

After two days of a boring, low volume driven sideways tight range trading, rates volume has skyrocketed into this sell off with the majority of sell tickets concentrated in the belly and the long end of the yield curve (5s,7s,10s). No one wants to catch a falling knife. Call it "selling down the ladder" or selling into a buyers market. Once sell tickets started to pour in...all traders could do is wait for flows to stabilize and try and make a new market at higher levels.

If you subscribe to the "PLAY THE RANGE UNTIL THE RANGE PLAYS YOU" theory, it makes more sense to float at this point. Rate levels have gone a long way in a short time....10s are now testing the outer limits of range support. Expect to see some bargain buying....optimism isn't abundant in this market. Just look at housing data. We are witness to one of the biggest drags on economic activity...do you see any reason why the market should be feeling warm and fuzzy about robust growth in the near term future? I don't...that keeps risk averse assets in high demand. Waiting for real money bargain buying induced short cover.

While 10s are rebounding, they face firm rebound resistance at 3.74%. The FN 4.5 will find it difficult to break 100-28.