MBS Pricing Snapshot

The overnight session was largely uneventful for bond markets as Treasuries were almost perfectly flat during Asian hours despite an uptick in equities markets. Bond got on-board with the gentle "risk-on" trade just before European hours, drifting higher in yield from 1.70 to 1.72+.

Domestic accounts started pushing back against the overnight weakness well ahead of the weaker-than-expected Durable Goods report. Similarly, stocks had been sliding since 6am New York time. MBS had opened roughly in line with yesterday's latest levels, stumbled momentarily and regained their footing just ahead of the data.

After the data hit, bond markets extended gains modestly and equities markets moved a bit lower in price. In an earlier update, we noted: "So far the reaction is moderately positive, which is to be expected given the weaker data. If it seems like the reaction should be "more positive," that could be due to the cyclical nature of the report which often sees the bigger gaining months followed by bigger contractions. Today's was only a big miss versus economists' consensus, but not at all outside the historical range of "misses."

Fannie 3.0s are currently up 1 tick on the day at 104-08, and 10yr yields are unchanged at 1.7064. Just slightly lower than that, the 1.700-1.703 internal trendline is once again offering tough resistance this morning, These yields aren't the bottom of the recent range, of course, but have come into play several times since the beginning of last week either as support or resistance. They were tested overnight and again after the Durables data and thus far have held firm.

Scheduled economic reports are done for the day, but the stock market open could offer some guidance. Additionally, today's 5yr Treasury Auction at 1pm is more significant than yesterday's 2yr auction was yesterday (which was "not at all" significant).

- Headline Durable Goods -5.7 vs -2.8 consensus
- Last month revised to +4.3 vs +5.6
- excluding transportation -1.4 vs +0.5 consensus
- ex-defense -4.7 vs -2.3 consensus

- Market Reaction: Markets were expecting a weaker result, but to see some improvement when transportation was factored out (due to a drop in Boeing orders), but even that metric managed a big miss. So far the reaction is moderately positive, which is to be expected given the weaker data. If it seems like the reaction should be "more positive," that could be due to the cyclical nature of the report which often sees the bigger gaining months followed by bigger contractions. Today's was only a big miss versus economists' consensus, but not at all outside the historical range of "misses."

New orders for manufactured durable goods in February increased $12.4 billion or 5.7 percent to $232.1 billion, the U.S. Census Bureau announced today. This increase, up five of the last six months, followed a 3.8 percent January decrease. Excluding transportation, new orders decreased 0.5 percent. Excluding defense, new orders increased 4.5 percent. Transportation equipment, up two of the last three months, drove the increase, $13.3 billion or 21.7 percent to $74.4 billion. This was led by nondefense aircraft and parts, which increased $9.0 billion.