MBS Pricing Snapshot

- Industrial Output +0.4 vs +0.2 consensus
- Capacity Use Rate 78.5 vs 78.4 consensus
- Market reaction: none.

Industrial production rose 0.4 percent in March after having increased 1.1 percent in February. For the first quarter as a whole, output moved up at an annual rate of 5.0 percent, its largest gain since the first quarter of 2012. Manufacturing output edged down 0.1 percent in March after having risen 0.9 percent in February; the index advanced at an annual rate of 5.3 percent in the first quarter. Production at mines decreased 0.2 percent in March and edged down in the first quarter. In March, the output of utilities jumped 5.3 percent, as unusually cold weather drove up heating demand. At 99.5 percent of its 2007 average, total industrial production in March was 3.5 percent above its year-earlier level. The rate of capacity utilization for total industry moved up in March to 78.5 percent, a rate that is 1.2 percentage points above its level of a year earlier but 1.7 percentage points below its long-run (1972--2012) average.

The flight-to-safety bond buying and stock selling associated with yesterday afternoon's headlines was made apparent right from the outset of the overnight session as both sides of the market steadily ground back in the other direction. US equities marched to their own beat, outperforming most global indexes, a further sign that the move is an unwinding of yesterday afternoon's volatility.

This was more docile during Asian trading hours but volatility picked up at the onset of the European session. After a weaker-than-expected ZEW sentiment survey in Germany, Bunds (Europe's 10yr benchmark) paradoxically moved higher in yield. EU equities were less paradoxical--moving lower and applying pressure to the slow and steady rally in S&P futures.

Markets hit domestic shores with Treasuries several bps higher in yield from Monday's close and equities several points higher (though still nearly 20 S&P points lower than Monday's open). As expected, data fell on deaf ears as Housing Starts, CPI, and Industrial Production all failed to produce any meaningful movement.

The theme of "resistance" continues in force as MBS trade under their important band of resistance (from 104-07 to 104-10) currently down 5 ticks on the day at 104-04. 10yr yields are up 4bps from 5pm levels at 1.7275. There are no further economic reports, but several Fed speakers this afternoon. Chicago Fed's Evans is speaking currently and so is ECB Pres Draghi. The latter is the primary source of near term market moving headlines though tradeflows and technicals rule the roost until/unless ousted by a big enough headline.

- CPI -0.1847 vs 0.0 consensus
- Core CPI +0.1058 vs +.2 consensus

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.2 percent in March on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.5 percent before seasonal adjustment.

The all items seasonally adjusted decrease was primarily due to a 4.4 percent decline in the gasoline index. The indexes for electricity and fuel oil declined as well, as the energy index fell 2.6 percent in March after a 5.4 percent increase in February. The food index was unchanged in March, with the index for food at home declining slightly.

The index for all items less food and energy increased 0.1 percent in March, after a 0.2 percent increase in February. The indexes for shelter, used cars and trucks, medical care, personal care, and airline fares all rose in March. These increases more than offset declines in the indexes for apparel, household furnishings and operations, and tobacco.

- Total Housing Starts 1.036 mln vs 930k Consensus
- Feb revised from 917k to 968k
- Single Fam -4.8, multi-fam +31.1
- Permits 902k vs 940k consensus
Market Reaction: Initial pop weaker for MBS/Treasuries, likely on the headline shock value of a 1 mln+ top line, but now tempered by internals, both sides of the market back toward opening levels.

BUILDING PERMITS
Privately-owned housing units authorized by building permits in March were at a seasonally adjusted annual rate of 902,000. This is 3.9 percent (±0.9%) below the revised February rate of 939,000, but is 17.3 percent (±1.4%) above the March 2012 estimate of 769,000.

Single-family authorizations in March were at a rate of 595,000; this is 0.5 percent (±0.7%)* below the revised February figure of 598,000. Authorizations of units in buildings with five units or more were at a rate of 283,000 in March.

HOUSING STARTS
Privately-owned housing starts in March were at a seasonally adjusted annual rate of 1,036,000. This is 7.0 percent (±11.8%)* above the revised February estimate of 968,000 and is 46.7 percent (±13.9%) above the March 2012 rate of 706,000.

Single-family housing starts in March were at a rate of 619,000; this is 4.8 percent (±10.8%)* below the revised February figure of 650,000. The March rate for units in buildings with five units or more was 392,000.

HOUSING COMPLETIONS
Privately-owned housing completions in March were at a seasonally adjusted annual rate of 800,000. This is 11.0 percent (±20.6%)* above the revised February estimate of 721,000 and is 36.3 percent (±23.3%) above the March 2012 rate of 587,000.

Single-family housing completions in March were at a rate of 593,000; this is 2.6 percent (±13.1%)* above the revised February rate of 578,000. The March rate for units in buildings with five units or more was 202,000.