MBS Pricing Snapshot

There was a relatively big pop of volume just after 10:50 and Treasury yields moved up abruptly with stock prices. But the overall move was small, covering less than 2 bps of 10y yield and less than 3 pts in S&P futures before changing course and heading back toward previous levels.

MBS weathered the storm fairly well. Despite a brief, "spooky" dip to 105-00 in Fannie 3.5's, they're now back in the green for the day at 105-04. Best we can tell at the moment, the dip was merely "flow-related," and not attributable to any event, headline, or economic release.

* Housing Market Index +29 vs +28 Last Month
* Last Month Revised to +28 From +29 Previously

Builder confidence in the market for newly built, single-family homes gained one point in June from a slightly revised level in the previous month to rest at 29 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. This is the highest level the index has attained since May of 2007.

“This month’s modest uptick in builder confidence comes on the heels of a four-point gain in May and is reflective of the continued, gradual improvement we are seeing in many individual housing markets as more buyers decide to take advantage of today’s low prices and interest rates,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla.

“While the June HMI is in keeping with our forecast for gradually improving single-family home sales this year, recent economic reports that have shown some weakening in the pace of recovery likely factored into the marginal gain,” said NAHB Chief Economist David Crowe. “In addition, builders across the country continue to report that overly tight lending conditions and inaccurate appraisals are major obstacles to completing sales at this time.”

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.

10yr yields made it as high as 1.65 during Asian trading hours, but shortly thereafter, leveled off around 1.63 before coming crashing down into the European session. There's no singular cause for the reversal, but the fact that the newly elected "pro-bailout" conservative party leader Samaras said he would try to "change the bailout agreement to relieve people from hardship" seems to have been the first domino.

Whether this served as a sobering reminder that "it's never fixed" with respect to Greece or if it caused legitimate concerns that Samaras--now elected--will, in some way, change his tune regarding the bailout, we can't say. More likely, it's an ingredient in the generally underwhelming "risk-on" swing that could have come from the election of Greece's pro-bailout conservatives. Perhaps it reinforced the notion that Greece continues to tread water, thus allowing markets to turn their attention to pushing Spanish debt yields to all time highs overnight.

Whatever the case, we find the first hour of domestic trade having occurred at slightly better levels than Friday's. 10yr yields are down to 1.57 and Fannie 3.5 MBS are up a tick at 105-04 currently. There's nothing major on the calendar this morning though the NAHB Housing Market Index prints at 10am.

A few updates on the headline event of the weekend. Results are tame, and about as uneventful as they could have been, but the election was fairly close according to several pollsters:

- Samaras/Conservatives take roughly 30% of vote
- Tsipras/Syriza Left take roughly 27%
- Conservatives - 128 seats, Syriza - 72 seats
- Socialists 33 seats, support pro-bailout agenda
- Tsipras (radical left Syriza party leader) concedes defeat
- Syriza spokesperson says party won't join coalition
- Samaras has enough seats to form government without Syriza
- Euro currency rises to highest levels since 5/22
- Generic "atta-boy's" from Eurogroup, Schaeuble, White House

Last time the Euro was at these levels, 10yr yields were hovering around 1.75%. That's not to say that 10yr yields will open or quickly trade to 1.75% this time, and we do expect Wednesday's FOMC festivities to keep things more contained than they otherwise would be, but it's fair to expect some weakness in bond markets on the heels of this much-less-dramatic-than-it-could-have-been result.

There are several minor pivot points between Friday's 1.58% close and the 1.70% level, which is really the first significant overhead support level. We wouldn't be too concerned about any weakness that doesn't cross above 1.70%. Additionally, MBS have room to outperform Treasuries in the event of marked weakness.