MBS Pricing Snapshot

The Conference Board Consumer Confidence Index®, which had declined slightly in April, fell further in May. The Index now stands at 64.9 (1985=100), down from 68.7 in April. The Expectations Index declined to 77.6 from 80.4, while the Present Situation Index decreased to 45.9 from 51.2 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 May 16.

Says Lynn Franco, Director of Economic Indicators at The Conference Board: "Consumer Confidence fell in May, following a slight decline in April. Consumers were less positive about current business and labor market conditions, and they were more pessimistic about the short-term outlook. However, consumers were more upbeat about their income prospects, which should help sustain spending. Taken together, the retreat in the Present Situation Index and softening in consumer expectations suggest that the pace of economic growth in the months ahead may moderate."

Consumers’ appraisal of present-day conditions deteriorated in May. Those claiming business conditions are "bad" increased to 34.3 percent from 33.2 percent, while those saying business conditions are "good" decreased to 13.6 percent from 15.5 percent. Consumers’ appraisal of the job market was also less favorable. Those claiming jobs are "hard to get" increased to 41.0 percent from 38.1 percent, while those stating jobs are "plentiful" decreased to 7.9 percent from 8.4 percent.

Data through March 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 that all three headline composites ended the first quarter of 2012 at new post-crisis lows.

The national composite fell by 2.0% in the first quarter of 2012 and was down 1.9% versus the first quarter of 2011. The 10- and 20-City Composites posted respective annual returns of -2.8% and -2.6% in March 2012.

Month-over-month, their changes were minimal; average home prices in the 10-City Composite fell by 0.1% compared to February and the 20-City remained basically unchanged in March over February. However, with these latest data, all three composites still posted their lowest levels since the housing crisis began in mid-2006.

In addition to the three composites, five cities - Atlanta, Chicago, Las Vegas, New York and Portland - also saw average home prices hit new lows. This is an improvement over the nine cities reported last month.

“While there has been improvement in some regions, housing prices have not turned,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “This month’s report saw all three composites and five cities hit new lows. However, with last month’s report nine cities hit new lows. Further, about half as many cities, seven, experienced falling prices this month compared to 16 last time."

10yr yields came into Asia's Tuesday morning session in line with Friday afternoon's levels between 1.74 and 1.75, but soon rose as high as 1.767 later-denied rumors of Chinese stimulus. The European session continued to help bond markets bounce back into positive territory as Spain's banking sector prompted an ongoing "risk off" trade.

This was most readily seen in 10yr German Bunds, which hit another record low earlier this morning (1.343 at 6:47am). As has been so often the case recently, US Treasuries followed Bunds, heading into the 1.71's in their version of the overnight rally.

Things have stepped back marginally from those low yields and 10's now trade at 1.7225 ahead of the Case-Shiller data at 9am. MBS opened up a few ticks higher with Fannie 3.5's up 3 ticks at 104-14 in light volume.