MBS Pricing Snapshot

Sales. The U.S. Census Bureau announced today that the combined value of distributive trade sales and manufacturers’ shipments for March, adjusted for seasonal and trading-day differences but not for price changes, was estimated at $1,241.0 billion, up 0.6 percent (±0.2%) from February 2012 and up 5.8 percent (±0.5%) from March 2011.

Inventories. Manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,580.2 billion, up 0.3 percent (±0.1%) from February 2012 and up 6.6 percent (±0.4%) from March 2011.

Inventories/Sales Ratio. The total business inventories/sales ratio based on seasonally adjusted data at the end of March was 1.27. The March 2011 ratio was 1.26.

- Builder confidence in the market for newly built, single-family homes gained five points in May from a downwardly revised reading in the previous month to reach a level of 29 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. This is the index’s strongest reading since May of 2007.

“Builders in many markets are reporting that buyer traffic and sales have picked back up after a pause this April,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla. “It seems we have resumed the gradual upward trend in confidence that started at the beginning of this year, as stabilizing prices and excellent affordability encourage more people to pursue a new-home purchase.”

“While home building still has quite a way to go toward a fully healthy market, the fact that the HMI has returned to trend is an excellent sign that firming home values, improving employment and low mortgage rates are drawing consumers back,” said NAHB Chief Economist David Crowe. “The pace of this emerging recovery could be stronger were it not for the significant impediments that the market continues to face with regard to builder and consumer access to credit, inaccurate appraisals, and more recently, rising materials prices.”

Derived from a monthly survey that NAHB has been conducting for 25 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

NAR’s composite quarterly Housing Affordability Index* rose to a record high of 205.9 in first quarter, based on the relationship between median home price, median family income and average mortgage interest rate. The higher the index, the greater the household purchasing power. This is the first time the quarterly index broke the 200 mark; recordkeeping began in 1970.

NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, said market conditions are optimal for home buyers. “For those with good credit, we’ve never seen better housing affordability conditions or market opportunities than we see at present,” he said. “Although home prices are stabilizing and sales are rising, some buyers still have to jump through a lot of hoops to convince a lender that they are creditworthy, even for a mortgage that would be well within their means. This is especially true for self-employed buyers.”

First quarter 2012 commercial and multifamily mortgage loan originations were 36 percent higher than during the same period last year and 12 percent lower than the fourth quarter of 2011, according to the Mortgage Bankers Association’s (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations. The decrease from fourth quarter 2011 reflects the industry’s usual push to finalize deals before the end of the year, and subsequent drop-offs in first quarter numbers.

“Borrowing and lending on commercial and multifamily properties continues to rebound from the lows seen during the Great Recession,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “The low interest rates and stabilization in commercial real estate fundamentals that raised origination levels by 55 percent in 2011 are continuing to buoy activity in 2012.“

Governor Elizabeth A. Duke At the National Association of Realtors Midyear Legislative Meetings and Trade Expo, Washington, D.C.

Prescriptions for Housing Recovery

The overnight session was largely uneventful in terms of market movements. Treasury yields stayed low to start the Asian session and crept up slowly until getting a moderate push higher on surprisingly strong German GDP (+0.5 pct vs +0.1 pct f'cast).

Domestically, the 8:30am data played out in slightly unfriendly fashion, briefly taking yields over 1.80 in10yr TSYs and Fannie 3.5 MBS down to 104-04. Both had already bounced by the time news hit that Greece failed to form a coalition government and will thus be going to elections. This added momentum to the bounce back into stronger territory.

Both MBS and Treasuries have since moved into the thick of yesterday's trading range and stock futures fell from yesterday's highs to trade near y'day's lows at the moment. Bond markets are in an interesting interdependent relationship with stock markets, German bonds, domestic data, and Greek headlines--with the first three all taking cues from each other when the fourth isn't giving clear indications.

The Greek news this morning was largely expected, so it's not carrying us through to lower yield levels for now. Fannie 3.5's are 2 ticks lower than y'day's 5pm levels at 104-07 and 10yr yields are in line with y'day's 3pm close in the mid 1.78's.

More data is on the way at 10am, but it's generally less consequential than the 8:30am data which has already proven itself to be less consequential than Greek headlines. Trading viewpoints are very short term and tactical right now. Our lines in the sand are at fairly narrow levels with a 1.768% 10yr yield resistance target and more important for MBS watchers, a 1.80 support target. Support breaks (yields moving over 1.80) would need to be confirmed with a sustained move below 104-05 in Fannie 3.5 MBS. As it stands, most of the AM volatility is shaking out before rate sheets, so we'll reassess afterward as necessary..

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

The sum total in March of all net foreign acquisitions of long-term securities, short-term U.S. securities, and banking flows was a monthly net TIC outflow of $49.9 billion. Of this, net foreign private outflows were $57.7 billion, and net foreign official inflows were $7.8 billion.

Foreign residents increased their holdings of long-term U.S. securities in March – net purchases were $22.3 billion. Net sales by private foreign investors were $4.0 billion, and net purchases by foreign official institutions were $26.3 billion.

At the same time, U.S. residents decreased their holdings of long-term foreign securities, with net sales of $13.9 billion.

Taking into account transactions in both foreign and U.S. securities, the net foreign purchases of long-term securities were $36.2 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 $19.0 billion in March.

Foreign residents decreased their holdings of U.S. Treasury bills by $2.7 billion.Foreign resident holdings of all dollar-denominated short-term U.S. securities and other custody liabilities decreased by $9.4 billion.

Banks’ own net dollar-denominated liabilities to foreign residents decreased by $59.5 billion.

Complete data are available on the Treasury website at:

The May Empire State Manufacturing Survey indicates that manufacturing activity expanded in New York State at a moderate pace. The general business conditions index rose eleven points to 17.1. The new orders index inched up to 8.3, and the shipments index shot up eighteen points to 24.1. The indexes for both prices paid and prices received were positive but lower in May, indicating that the pace of price increases slowed. Employment index readings remained relatively healthy, suggesting that employment levels and hours worked continued to expand. Future indexes were noticeably lower than last month, indicating a positive but somewhat less optimistic view of the sixmonth outlook.

In a series of supplementary questions, fi rms were asked about past and expected changes in both their input prices (prices paid) and selling prices (prices received). Respondents estimated that the prices they paid increased 3.6 percent, on average, over the past twelve months—down sharply from the 8.1 percent rise reported in last May’s survey. Looking ahead to the next twelve months, respondents on average predicted a price rise of 3.5 percent. Firms reported smaller increases in prices received: the average respondent cited a 1.7 percent increase in selling prices over the past year (down from 1.9 percent in the May 2011 survey) and an expected increase of 2.1 percent for the year ahead.

The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in April on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.3 percent before seasonal adjustment.

The energy index, which had risen in each of the three previous months, declined in April on a seasonally adjusted basis and offset increases in the other major indexes. The gasoline index fell 2.6 percent in April and accounted for most of the decline in energy, though the indexes for natural gas and fuel oil decreased as well. The food index rose in April as five of the six major grocery store food group indexes increased.

The index for all items less food and energy rose 0.2 percent in April, the same increase as in March. Increases in the indexes for shelter, used cars and trucks, medical care, airline fares, new vehicles, and apparel all contributed significantly to the April increase.

The 12-month change in the index for all items was 2.3 percent in April, the lowest figure since February 2011. The index for all items less food and energy also increased 2.3 percent over the last 12 months. This is the first time since October 2009 that the 12-month all items change has not exceeded the 12-month change for all items less food and energy. The food index has risen 3.1 percent over the last 12 months, and the energy index has risen 0.9 percent.

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for April, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $408.0 billion, an increase of 0.1 percent (±0.5%)* from the previous month and 6.4 percent (±0.7%) above April 2011. Total sales for the February through April 2012 period were up 6.6 percent (±0.5%) from the same period a year ago. The February to March 2012 percent change was revised from 0.8 percent (±0.5) to 0.7 percent (±0.3%). Retail trade sales were up 0.1 percent (±0.5%)* from March 2012 and 6.1 percent (±0.7%) above last year. Nonstore retailers sales were up 11.0 percent (±3.1%) from April 2011 and building material and garden equipment and supplies dealers were up 10.3 percent (±2.8%) from last year.