MBS Pricing Snapshot

February pending home sales flattened with limited buyer choices, but remained at the second highest level in nearly three years, according to the National Association of Realtors.

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, slipped 0.4 percent to 104.8 in February from a downwardly revised 105.2 in January, but is 8.4 percent higher than February 2012 when it was 96.6. Contract activity has been above year-ago levels for the past 22 months; the data reflect contracts but not closings.

Before January, the last time the index showed a higher reading was in April 2010 when it was 110.9, shortly before the deadline for the home buyer tax credit.

Lawrence Yun , NAR chief economist, said limited inventory is holding back the market in many areas. "Only new home construction can genuinely help relieve the inventory shortage, and housing starts need to rise at least 50 percent from current levels," he said. "Most local home builders are small businesses and simply don't have access to capital on Wall Street. Clearer regulatory rules, applied to construction loans for smaller community banks and credit unions, could bring many small-sized builders back into the market."

Wow, where to start... It's as if the Eurozone suddenly 'admitted' to financial markets that it would not be quite so easy to pull up from recent tail-spins brought about by Italy and Cyprus. Regarding the latter, it's more about observing the evolution in behavior and policy among EU officials and extrapolating that to Italy and Spain. Very little of this morning's movement has to do with Cyprus alone.

Ah yes, the movement. It's good so far! 10yr yields fell from 1.904 to 1.855 in the small space of 2 hours between 4:45 and 6:45am. MBS have opened up a quarter of a point higher at 103-03 and are currently 12 ticks higher at 103-07. 10's are currently down .0587 at 1.8506. S&P futures are down nearly 10 points.

The European session was (and still is) rife with headlines that all generally combine to push Euros and Bund yields lower. Data was mostly in line with estimates though estimates were generally calling for weakness. Eurozone Economic Sentiment was slightly weaker, Italian Industrial Production and Retail Sales continued to slide.

More alarming than any of the data (which just sort of provided a gloomy backdrop for the real market movers) was the breakdown of peripheral spreads in Spain and chiefly, Italy. Markets were already on the move before an Italian auction, but some of that movement was due to a "concession" for that auction. It's a good thing too because the bid-to-cover (1.22) was the lowest since well before the Euro crisis began. Spanish spreads vs German Bunds rose after Spain reported a higher debt to GDP forecast and a widening trade deficit. Though not the focal point of the overnight session, Cyprus continued to contribute with its Popular Bank saying that haircuts on balances over 100k may be as much as 80%.

But to place too much emphasis on any one event from the overnight session is to miss the bigger picture. That is to say there was no stand-out all-star performance among headlines or pieces of data. It was very much a team effort and everyone did their part. Italy, Spain, Cyprus... All helping peripheral spreads widen. The equities weakness is more pronounced than it recently has been. With S&P's approaching an all-time high close yesterday, 10 points of weakness overnight is helping round out a broader case for "risk off." On a final note, we're STILL WAITING for a conclusive headline out of Italy and markets are getting nervous about another breakdown in the attempt to form a government.

Upcoming domestic economic data is all but inconsequential as we continue to follow European headlines and market movements. 10yr Treasury resistance at 1.83-1.84 is still a big deal.