MBS Pricing Snapshot

Only for those lenders out with rate sheets earlier in the morning, reprice risk is possibly already increasing as Fannie 3.0 MBS have fallen from 103-22 around the first rate sheet print times to 103-17 currently. The lenders who price that early don't always reprice negatively on a 5 tick drop this early, but it is on the edge of "possible."

We probably wouldn't put out the alert if the swings looked purely incidental, but Euros are threatening a break of their overnight highs and the stock lever is in effect.

10's are 1.8688 and equities are at their highest levels since 3pm Monday.

- PHS Index +4.5 vs +1.5 Consensus
- Index +9.5 vs Jan 2012
- Index highest since April 2010

Pending home sales rose in January, and have been above year-ago levels for the past 21 months, according to the National Association of Realtors®. There were healthy monthly gains in all regions but the West, which is constrained by limited inventory but was slightly improved.

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, increased 4.5 percent to 105.9 in January from a downwardly revised 101.3 in December and is 9.5 percent above January 2012 when it was 96.7. The data reflect contracts but not closings.

The January index is the highest reading since April 2010 when it hit 110.9, just before the deadline for the home buyer tax credit. Aside from spikes induced by the tax credits, the last time there was a higher reading was in February 2007 when it reached 107.9.

Lawrence Yun , NAR chief economist, said inventory is the key to this year's housing market. "Favorable affordability conditions and job growth have unleashed a pent-up demand. Most areas are drawing down housing inventory, which has shifted the supply/demand balance to sellers in much of the country. It's also why we're experiencing the strongest price growth in more than seven years," he said.

Italy's Beppe Grillo doesn't weigh 800lbs, but he has been the metaphorical gorilla in the room this morning...

Overnight improvements in Treasuries were moderate at best, and came nowhere near challenging yesterday's mid-day low yields. 10's opened a bp lower in Asia and ratcheted another bp down by 6am despite well-subscribed Italian debt auctions and improving Euro-zone sentiment and business climate indexes.

Treasuries crossed into domestic hours just over 1.86 and MBS came in 2 ticks improved at 103-18. Both began rallying rather immediately and not for any reasons that will be readily apparent in the mainstream media.

German Bunds and Euros began losing steam at their quickest pace of the morning a solid 10 minutes before the Durable Goods release. This is due to comments from Beppe Grillo, who was the largest single party vote winner in Monday's election, saying that he won't support any new government. This effectively suggests Italy will have to go back to elections considering Berlusconi and Bersani are even less likely to end up working together.

Treasuries followed the Euro/Bunds move here. Equities futures actually paid it some mind as well, but drew some strength from positive internals in the Durable Goods report. The funny thing is that you'll probably see headlines elsewhere that suggest "weaker Durable Goods" helped bond markets. In fact, sans Grillo comments, Durables were net negative for bond markets, but weren't enough to trump the positive implications of more Italian uncertainty.

10's are currently down to 1.8465 and Fannie 3.0s are up 7 ticks at 103-22. S&P futures are right in line with 5pm levels. Bernanke and Pending Home Sales are up next at 10am. Again, these have been relegated to "put up or shut up" mode vs the 800lb Italian Gorilla in the room. It's not that the other data (or fed speeches) can't move markets, simply that they'd have to be extra shocking to do so meaningfully.

- Durables -5.2 vs -4.4 Consensus
- December revised down to +3.7 vs +4.3 previously


New orders for manufactured durable goods in January decreased $11.8 billion or 5.2 percent to $217.0 billion, the U.S. Census Bureau announced today. This decrease, down following four consecutive monthly increases, followed a 3.7 percent December increase. Excluding transportation, new orders increased 1.9 percent. Excluding defense, new orders decreased 0.4 percent.

Transportation equipment, down three of the last four months, drove the decrease, $14.7 billion or 19.8 percent to $59.7 billion. This was led by defense aircraft and parts, which decreased $5.1 billion.