MBS Pricing Snapshot

Fannie 3.5's are up 8 ticks on the day now and 10yr yields are down around the 1.71% level as the Euro collapses, German Bunds hit new record low yields, domestic equities sell-off hard, and the Fed is in buying in the 30yr range. It's been a very good hour for bond markets, much more so for TSYs than MBS. But we'll take what we can get...

U.S. house prices rose modestly in the first quarter of 2012 according to the Federal Housing Finance Agency’s (FHFA) seasonally adjusted purchase-only house price index (HPI). The FHFA HPI was up 0.6 percent on a seasonally adjusted basis since the fourth quarter of 2011. The HPI is calculated using home sales price information from Fannie Mae and Freddie Mac mortgages. Seasonally adjusted house prices rose 0.5 percent from the first quarter of 2011 to the first quarter of 2012. FHFA’s seasonally adjusted monthly index for March was up 1.8 percent from February.

“Consistent with other housing market indicators, the FHFA HPI showed stronger house prices in the first quarter, most notably in March,” said FHFA Principal Economist Andrew Leventis. “Increased affordability and a somewhat smaller inventory of homes for sale are positively impacting house prices.”

FHFA’s expanded-data house price index, a metric introduced in August 2011 that adds transactions information from county recorder offices and the Federal Housing Administration to the HPI data sample, rose 0.2 percent over the latest quarter. Over the latest four quarters, the index is down 1.3 percent. For individual states, price changes reflected in the expandeddata measure and the traditional purchase-only HPI are compared on pages 24-26.

While the national, purchase-only house price index rose 0.5 percent from the first quarter of 2011 to the first quarter of 2012, prices of other goods and services rose 3.2 percent over the same period. Accordingly, the inflation-adjusted price of homes fell approximately 2.6 percent over the latest year.

(Reuters) - New single-family home sales rose more than expected in April and prices pushed higher, further evidence the housing market was turning the corner.

The Commerce Department said on Wednesday sales increased 3.3 percent to a seasonally adjusted 343,000-unit annual rate after a 332,000-unit pace in March.

Economists polled by Reuters had forecast sales at a 335,000-unit rate in April. Compared to April last year, new home sales were up 9.9 percent.

The data, coming on the heels of a report on Tuesday showing home resales hit a two-year high in April, suggested the housing market recovery was gaining traction.

It also highlighted the economy's underlying strength, even though job growth has slowed in recent months. The weak housing market has been the Achilles heel of the economy's recovery from the 2007-09 recession, as falling home values restrain consumer spending.

Signs of life in the housing market were also bolstered by a 0.7 percent rise in the median price of a new home last month to $235,700 from March. Compared to April last year, the median price was up 4.9 percent.

Markets bounced on Tuesday as the magic word "eurobonds" was heard — new French president Francois Hollande is keen and Christine Lagarde at the International Monetary Fund has endorsed the principle of more debt-sharing in the eurozone. Today share prices are down partly because investors have remembered that we've been round the houses on eurobonds several times already during this crisis and the debate always comes back to the same point: Germany is reluctant to underwrite the debts of its neighbours. That reluctance looks entrenched as ever, whatever Hollande and Lagarde might wish.

In what circumstances might German budge? Gary Silverman of Swordfish Research has the answer — "only at one minute to midnight if the alternative was a complete collapse of the system."

(Reuters) - Euro zone officials have agreed that each euro zone country must prepare an individual contingency plan in the eventuality that Greece decides to leav the single currency area, two eurozone officials said on Wednesday.

The agreement was reached during a teleconference of the Eurogroup Working Group (EWG), which started at 1300 GMT on Monday and lasted for about one hour.

As well as confirmation from two officials, Reuters has seen a memo drawn up by one member state detailing some of the elements that euro zone countries should consider.

The EWG consists of officials who prepare meetings of finance ministers and also form the board of the temporary bailout fund, the European Financial Stability Facility (EFSF).

"The EWG agreed that each euro zone country should prepare a contingency plan, individually, for the potential consequences of a Greek exit from the euro," said one euro zone official familiar with what was discussion on the call.

"Nothing was prepared so far on the euro zone level for now, for fear of leaks," the official said.

Strong German auctions, a lack of further stimulus cues from foreign central banks, and a technical bounce, among other things helped bond markets get back on the good foot overnight. 10's opened around 1.75 and are down another bp already this morning to 1.74, well-connected with the stock lever. MBS opened up around 104-13 and are up 4 ticks vs y'day's close already at 104-13. Most recently, news that the Europgroup requested contingency plans from Euro-zone governments for a Greek exit (Reuters wire) has led stock futures lower and been another net-positive for bond markets.

Although MBA mortgage apps are already out (purchases lower, refi's up again), the first major data of the morning hits at 10am with New Home Sales and the monthly Home Price Index. 5yr Treasury auction results hit at 1pm.

Apart from attributing any of the overnight strength to "cause and effect" events, there's also that whole notion we've been harping on of Euro-drama tending to keep things relatively contained ahead of next month's biggies (the "real" EU Summit as well as Greek elections). To that end, 1.80 has held up as something of a short term ceiling in 10yr yields for now, and a good measure of the rally in the overnight session was simply a mini-snowball of shorts being covered as well as "empathetic" bond buying with an eye toward the pivot point resistance in equities futures (e.g. TSY yields legged lower after S&P futures failed a break through 1313 for the 2nd time of the session.