MBS Pricing Snapshot

Without any immediate motivation by way of headline or economic data, MBS and Treasuries have rallied to their best levels since March 7th. 10yr yields traded briefly in the 1.95's and are currently at 1.96. Fannie 3.5 MBS are up 5 ticks on the day to 103-19 and were as high as 103-22 recently, a price not seen by May coupons since 3/7/11.

The stock lever is fairly well-connected this morning and broad themes of "risk-on vs risk-off" seem to underlie the moderate volume of trading, but there's no clear-cut headline motivation causing one big pop. It's been more of a large, steady wave of price action leading bond markets to better levels.

*Inventories up 0.6 pct vs 0.6 pct consensus
*Sales up 0.7 pct vs Jan +0.4 pct

Sales. The U.S. Census Bureau announced today that the combined value of distributive trade sales and manufacturers’ shipments for February, adjusted for seasonal and trading-day differences but not for price changes, was estimated at $1,236.7 billion, up 0.7 percent (±0.2%) from January 2012 and up 7.6 percent (±0.4%) from February 2011.

Inventories. Manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,577.8 billion, up 0.6 percent (±0.1%) from January 2012 and up 7.6 percent (±0.4%) from February 2011.

Inventories/Sales Ratio. The total business inventories/sales ratio based on seasonally adjusted data at the end of February was 1.28. The February 2011 ratio was 1.28.

Builder confidence in the market for newly built, single-family homes declined for the first time in seven months this April, sliding three notches to 25 on the National Association of Home Builders/Wells Fargo Housing Market Index, released today. The decline brings the index back to where it was in January, which was the highest level since 2007.

“Although builders in many markets are noting increased interest among potential buyers, consumers are still very hesitant to go forward with a purchase, and our members are realigning their expectations somewhat until they see more actual signed sales contracts,” noted Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla.

“What we’re seeing is essentially a pause in what had been a fairly rapid build-up in builder confidence that started last September,” said NAHB Chief Economist David Crowe. “This is partly because interest expressed by buyers in the past few months has yet to translate into expected sales activity, but is also reflective of the ongoing challenges that are slowing the housing recovery – particularly tight credit conditions for builders and buyers, competition from foreclosures and problems with obtaining accurate appraisals.”

Bond markets improved slightly in the overnight session from Friday's strong closing levels. 10yr yields were down to 1.97 just after the domestic open as Spain took center stage with its highest 10yr yields of the year (above 6 %). Fannie 3.5 MBS hit 103-18.

The 830am round of data caused a bit of a shake up, generally taking yields higher and prices lower for bond markets, but the damage was minimal as range boundaries proved stronger than any implications from the data. A much weaker read on Manufacturing from the New York Fed helped counterbalance a stronger-than-expected Retail Sales Report.

The Treasury International Capital report, with it's new-and-improved data collection system ostensibly garnering a bit more investor attention (see the link below for more details), showed waning demand for Long-Term US Debt in February. Again bond markets weakened slightly in response to data and again "the range" proved more important than data as 10yr yields bounced just under their last prominent peak from Friday afternoon at 2.00%.

Fannie 3.5 MBS found support at 103-12, also in line with Friday afternoon support and currently trade closer to unchanged on the day at 103-16. 10yr yields are also close to unchanged at 1.986 as bond markets have generally done a fine job of tolerating a stronger stock market open.

There are two more reports ahead at 10am, Business Inventories and the NAHB Housing Market Index. These are not altogether unimportant, but much less significant than the 8:30am data already digested.

*Net Long Term Inflow 10.1 bln vs revised 102.4 bln in Jan

The U.S. Department of the Treasury today released Treasury International Capital (TIC) data for February 2012. The next release, which will report on data for March 2012, is scheduled for May 15, 2012.

In sum, the net foreign acquisition of long-term securities, the change in foreign holdings of short-term U.S. securities, and banking flows yielded monthly net TIC inflows of $107.7 billion. Of this, net foreign private inflows were $86.9 billion, and net foreign official inflows were $20.8 billion.

Foreign residents increased their holdings of long-term U.S. securities in February – net purchases were $24.8 billion. Net purchases by private foreign investors were $6.2 billion, and net purchases by foreign official institutions were $18.6 billion.

At the same time, U.S. residents increased their holdings of long-term foreign securities, with net purchases of $14.6 billion.

Taking into account transactions in both foreign and U.S. securities, the net foreign purchases of long-term securities were $10.1 billion. After including adjustments, such as estimates of unrecorded principal payments to foreigners on U.S. asset-backed securities, the overall net foreign acquisition of long-term securities is estimated to have been negative $4.9 billion in February.

Foreign residents increased their holdings of U.S. Treasury bills by $25.9 billion. Foreign resident holdings of all dollar-denominated short-term U.S. securities and other custody liabilities increased by $64.6 billion.

6.56 vs 18.0 consensus and 20.21 in March

The Empire State Manufacturing Survey’s headline index fell significantly in April, though it still indicated a modest increase in activity. The general business conditions index dropped fourteen points to 6.6, suggesting that while growth continued, the pace slowed over the month. The new orders index was little changed at 6.5, indicating a modest increase in orders, and the shipments index fell twelve points to 6.4, indicating a slower pace of growth for shipments. The unfilled orders index fell six points to -7.2, and the delivery time index dropped three points to 4.8. The inventories index was little changed at 1.2, suggesting that inventory levels held steady.

Input price increases remained signifi cant. After rising sharply last month, the prices paid index fell five points to 45.8. Though somewhat lower than in March, this reading was well above the index’s level in the preceding several months. Selling prices also rose noticeably, with the prices received index climbing six points to 19.3. Employment indexes were positive, but moved in opposite directions. Pointing to a healthy increase in employment levels, the index for number of employees rose six points to 19.3, its highest level in nearly a year. The average workweek index fell thirteen points to 6.0, indicating a modest increase in hours worked.

*Retail Sales +0.8 vs +0.3 consensus
*Previous month revised down from +1.1 to +1.0
*Core Sales unchanged at +0.5 pct

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for March, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $411.1 billion, an increase of 0.8 percent (±0.5%) from the previous month and 6.5 percent (±0.7%) above March 2011. Total sales for the January through March 2012 period were up 6.4 percent (±0.5%) from the same period a year ago. The January to February 2012 percent change was revised from 1.1 percent (±0.5) to 1.0 percent (±0.2%).

Retail trade sales were up 0.8 percent (±0.5%) from February 2012 and 6.5 percent (±0.7%) above last year. Building material and garden equipment and supplies dealers sales were up 14.1 percent (±2.6%) from March 2011 and nonstore retailers were up 9.3 percent (±3.0%) from last year.