MBS Pricing Snapshot

Reprice risk is very slightly elevated at the moment, though perhaps less so than the chart would seem to indicate. Reasons for this are twofold.

1) The chart ranges are fairly narrow, making a move from 103-25 to 103-21 look bigger than the 4 ticks it is.

2) Origination volumes have been heavy this morning, meaning lenders have essentially been "locking" by selling TBA MBS. The more origination that gets out of the way, the better MBS can hold their ground vs any oncoming TSY weakness.

The latter (weakness in benchmark Treasuries) however, is the problem. 10's are currently at their highest yields of the day, but as yet have not broken higher (1.9577). If 10's do break higher, it would continue a 2-day uptrend in yields and potentially force MBS to lower prices and greater risk of negative reprices. For now, we're right on the edge of risk.

* Prices at Jan 2004 levels according to FHFA, interesting to note vs Case-Shiller Report indicating prices are closer to 2002. FHFA readings are generally more bullish than Case-Shiller.

U.S. house prices rose 0.3 percent on a seasonally adjusted basis from January to February, according to the Federal Housing Finance Agency’s monthly House Price Index. While prices in January were unchanged according to initial estimates reported in the last HPI release, the January result has been revised downward to reflect a 0.5 percent decrease. For the 12 months ending in February, U.S. prices rose 0.4 percent, the first 12-month increase since the July 2006 - July 2007 interval. The U.S. index remains 19.4 percent below its April 2007 peak and is roughly the same as the January 2004 index level.

The FHFA monthly index is calculated using purchase prices of houses backing mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac. For the nine census divisions, seasonally adjusted monthly price changes from January to February ranged from -1.0 percent in the West North Central and Middle Atlantic divisions to +1.9 percent in the Mountain division.

*328k units vs 320k consensus in March
*Feb revised UP to 353k from 313k
*Feb revision highest since 11/2009

Sales of new single-family houses in March 2012 were at a seasonally adjusted annual rate of 328,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 7.1 percent (±20.7%)* below the revised February rate of 353,000, but is 7.5 percent (±19.6%)* above the March 2011 estimate of 305,000.

The median sales price of new houses sold in March 2012 was $234,500; the average sales price was $291,200. The seasonally adjusted estimate of new houses for sale at the end of March was 144,000. This represents a supply of 5.3 months at the current sales rate.

The Conference Board Consumer Confidence Index®, which had declined slightly in March, was virtually unchanged in April. The Index now stands at 69.2 (1985=100), down slightly from 69.5 in March. The Expectations Index declined to 81.1 from 82.5, while the Present Situation Index improved to 51.4 from 49.9 last month.

The monthly Consumer Confidence Survey®, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch. The cutoff date for the preliminary results was April 12.

Says Lynn Franco, Director of The Conference Board Consumer Research Center: “Consumer Confidence was virtually unchanged in April, following a modest decline in March. As was the case last month, the slight dip was prompted by a moderation in consumers’ short-term outlook, while their assessment of current conditions continued to improve. Overall, consumers are more upbeat about the state of the economy, but they remain cautiously optimistic.”

Consumers’ assessment of current conditions improved in April. Those claiming business conditions are “good” increased to 15.3 percent from 14.3 percent. However, those claiming business conditions are “bad” edged up to 33.5 percent from 33.2 percent. Consumers’ appraisal of the job market remained mixed. Those stating jobs are “hard to get” declined to 37.5 percent from 40.7 percent, while those stating jobs are “plentiful” decreased to 8.4 percent from 9.0 percent.

Consumers were, once again, slightly less optimistic about the short-term outlook. Those expecting business conditions to improve over the next six months decreased to 18.8 percent from 19.3 percent, while those anticipating business conditions will worsen increased to 14.2 percent from 13.7 percent.

Consumers’ outlook for the labor market was less upbeat. Those anticipating more jobs in the months ahead decreased to 16.9 percent from 17.4 percent, however, those anticipating fewer jobs decreased to 18.0 percent from 18.5 percent. The proportion of consumers expecting an increase in their incomes declined to 14.0 percent from 15.5 percent.

Overnight hours saw some bond market weakness after reasonably well-received debt auctions in Spain and Holland. But said weakness continues to be well-contained in terms of 10yr yields which are still trading around 1.95. MBS, on the other hand, made it back to 'unchanged' after opening weaker this morning. Fannie 3.5's are currently unchanged on the day at 103-23, near the lower end of y'day's range.

The first econ data of the day is on the books with Case Shiller Home Prices hitting their lowest levels since 2002. The report wasn't without it's redeeming qualities, however, as the seasonally adjusted 20-city index rose 0.2 pct, as expected. Year over year, 10 and 20 city averages are down 3.5 and 3.6 pct respectively.

There was no major market reaction to that data, with most of the bounce back from weaker MBS levels purely attributable to the morning ramp-up in liquidity. The next, and more robust, round of data is up in about 20 minutes with more home price data from the FHFA, New Home Sales, and Consumer Confidence. Slightly more market moving potential here, but limited overall impact due to tomorrow's big ticket events. We wrote a bit more on this in The Day Ahead:

Data through February 2012, released today by S&P Indices for its S&P/Case- Shiller1 Home Price Indices, the leading measure of U.S. home prices, showed annual declines of 3.6% and 3.5% for the 10- and 20-City Composites, respectively. This is an improvement over the annual rates posted for the month of January, -4.1% and -3.9%, respectively. In addition to the two Composites, 15 of the 20 MSAs posted better annual returns in February compared to January; Atlanta, Chicago, Cleveland and Detroit fared worse in February and Washington DC’s rate remained unchanged. Nine MSAs and both Composites posted new cycle lows as of February 2012. Atlanta had the only double-digit negative annual at -17.3%. This was the fifth consecutive month of double-digit negative returns for Atlanta and the lowest annual return in its 20-year history.. Five of the 20 MSAs saw positive annual returns – Denver, Detroit, Miami, Minneapolis and Phoenix. Phoenix, which is one of the cities that fared the worst during the crisis, has now posted two consecutive months of positive annual returns and five consecutive positive monthly returns. However, it is still down 54.2% from its peak.

“While there might be pieces of good news in this report, such as some improvement in many annual rates of return, February 2012 data confirm that, broadly-speaking, home prices continued to decline in the early months of the year,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “Nine MSAs -- Atlanta, Charlotte, Chicago, Cleveland, Las Vegas, New York, Portland, Seattle and Tampa -- and both Composites hit new post-crisis lows. Atlanta continued its downward spiral, posting its lowest annual rate of decline in the 20-year history of the index at -17.3%. The 10-City Composite declined 3.6% and the 20-City was down 3.5% compared to February 2011.

-Annual declines of 3.6% and 3.5% for the 10- and 20-City Composites. This is an improvement over the annual rates posted for the month of January (-4.1% and -3.9%, respectively).

15 of the 20 MSAs posted better annual returns in February compared to January.

-Nine MSAs (Atlanta, Charlotte, Chicago, Cleveland, Las Vegas, New York, Portland, Seattle and Tampa) and both Composites hit new post-crisis lows.

-Atlanta had the only double-digit negative annual return at -17.3%. This was the 5th consecutive month of double-digit negative returns for Atlanta.

-In February, both Composites fell by 0.8% over the month. Miami, Phoenix, San Diego were the only MSAs to record positive monthly returns in February.

-Phoenix, which is one of the cities that fared the worst during the crisis, has now posted two consecutive months of positive annual returns and five consecutive positive monthly returns. However, it is still down 54.2% from its peak.