MBS Pricing Snapshot

Freddie Mac (OTCQB: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates moving lower for the fifth consecutive week amid the weaker than expected first quarter economic growth advance estimate. The 30-year fixed-rate mortgage at 3.35 percent is hovering just above its all-time record low of 3.31 percent set the week of November 21, 2012. The 15-year fixed-rate mortgage set a new all-time record low this week at 2.56 percent, eclipsing the record set last week.

Frank Nothaft, vice president and chief economist, Freddie Mac:

"Mortgage rates eased somewhat following the release of the advance estimate of real GDP growth for the first quarter of the year, which rose 2.5 percent but fell short of the market consensus forecast. The latest GDP report confirmed that the housing sector has become an important contributor to the economic recovery. Residential fixed investment added to overall economic growth over the past eight consecutive quarters and contributed more than 0.3 percentage points in growth over the first three months of this year. Moreover, near record low mortgage rates should further drive the housing market recovery over the near term."

Let's skip the overnight session because there was no meaningful movement and far more interesting things have transpired since then. It is worth mentioning that bond markets drifted ever-so-slightly weaker overnight, leading up to the ECB Announcement.

As many expected, the ECB cut rates. They went for the "warm bowl of porridge" approach and cut .25 as opposed to the polar spectrum bets of .50 or zero bps. This had a warm porridge effect on bond markets as well. 10yr yields rose slightly ahead of 8am, but fell back to pre-ECB levels before Jobless Claims.

On that front, Claims were stronger than expected--324k vs 345k consensus. 10's jumped up about 1.5bps and MBS fell 3 ticks after already opening 4 ticks weaker. That made for an intraday low of 104-17 for Fannie 3.0's. The juxtaposed economic data was inconsequential so markets turned their attention to Mario Draghi's (ECB President) press conference that began at 8:30am.

Long story short on Draghi, he noted broad consensus on the rate cut, hinted at a real potential for declining growth/ inflation, and even signaled a willingness to cut the deposit rate into negative territory.

While not enough to get us back into positive territory, this has been enough to undo a good portion of the damage done by lower Jobless Claims. Fannie 3.0s are back up to 104-20 (down 4 ticks on the day), and 10yr yields are up .71 at 1.6391.

- Productivity +0.7 vs +1.2 forecast
- Labor Costs +0.5 vs +0.7 forecast

Nonfarm business sector labor productivity increased at a 0.7 percent annual rate during the first quarter of 2013, the U.S. Bureau of Labor Statistics reported today. The increase in productivity reflects increases of 2.5 percent in output and 1.8 percent in hours worked. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the first quarter of 2012 to the first quarter of 2013, productivity increased 0.9 percent as output and hours worked increased 2.5 percent and 1.5 percent, respectively.

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers.

Unit labor costs in nonfarm businesses increased 0.5 percent in the first quarter of 2013, as an increase in hourly compensation was greater than the increase in productivity. Unit labor costs rose 0.6 percent over the last four quarters.

BLS defines unit labor costs as the ratio of hourly compensation to labor productivity; increases in hourly compensation tend to increase unit labor costs and increases in output per hour tend to reduce them.

- Trade Deficit $38.8 bln vs $42 bln consensus
- Exports -0.9 vs +0.9 previously
- Imports -2.8 vs +0.3 previously
- Imports see biggest decline since Feb 2009

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total March exports of $184.3 billion and imports of $223.1 billion resulted in a goods and services deficit of $38.8 billion, down from $43.6 billion in February, revised. March exports were $1.7 billion less than February exports of $186.0 billion. March imports were $6.5 billion less than February imports of $229.6 billion.

In March, the goods deficit decreased $4.6 billion from February to $56.1 billion, and the services surplus increased $0.2 billion from February to $17.3 billion. Exports of goods decreased $1.8 billion to $130.3 billion, and imports of goods decreased $6.4 billion to $186.5 billion. Exports of services increased $0.1 billion to $53.9 billion, and imports of services decreased $0.1 billion to $36.6 billion.

The goods and services deficit decreased $12.9 billion from March 2012 to March 2013. Exports were down $0.4 billion, or 0.2 percent, and imports were down $13.3 billion, or 5.6 percent.

- 324k vs 345k forecast
- last week revised up to 342k from 339k
- 4-week average 342,250, down from 358,250
- continued claims 3.019 mln vs 3.028 mln forecast

In the week ending April 20, the advance figure for seasonally adjusted initial claims was 339,000, a decrease of 16,000 from the previous week's revised figure of 355,000. The 4-week moving average was 357,500, a decrease of 4,500 from the previous week's revised average of 362,000.

The advance seasonally adjusted insured unemployment rate was 2.3 percent for the week ending April 13, a decrease of 0.1 percentage point from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending April 13 was 3,000,000, a decrease of 93,000 from the preceding week's revised level of 3,093,000. The 4-week moving average was 3,071,750, a decrease of 17,500 from the preceding week's revised average of 3,089,250.