MBS Pricing Snapshot

10yr yields are down nearly 2 bps since 10am data, primarily due to the weaker Philly Fed Index. It's notable in that last month's report took a big nose dive and historically, such sharp movements see moderation in the other direction the following month. But today's -16.6 is a notable decline on top of May's already notable -5.8.

The other 10am data (LEI, Home Prices, and Existing Sales) are more incidental next to the Philly Fed data, but showed mixed results with sales slightly lower than expected, but prices rising (both in the EHS and FHFA tally). Leading Indicators were stronger than expected, but are merely a collection of mostly backward looking data that markets have already had a chance to digest.

Fannie 3.5's are closing in on 105-00 again and 10yr yields are down to 1.616. Stocks fell about 4 points in the S&P. Weakness in the Euro and falling German Bund yields are also contributing to the domestic Treasury market strength.

The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.3 percent in May to 95.8 (2004 = 100), following a 0.1 percent decline in April, and a 0.2 percent increase in March.

Says Ataman Ozyildirim, economist at The Conference Board: “The LEI rose in May, reversing the slight decline in April. Weakness in the average workweek in manufacturing, stock prices and consumer expectations kept the LEI from rising further. Its six-month growth rate remains in expansionary territory and well above its growth at the end of 2011, pointing to a relatively low risk of a downturn in the second half of 2012.”

Says Ken Goldstein, economist at The Conference Board: “Economic data in general reflect a U.S. economy that is growing modestly, neither losing nor gaining momentum. The result is more of a muddle through. Continued headwinds, both domestic and foreign, make further strengthening of the economy difficult.”

U.S. house prices rose 0.8 percent on a seasonally adjusted basis from March to April, according to the Federal Housing Finance Agency’s monthly House Price Index. The previously reported 1.8 percent increase in March was revised downward to reflect a 1.6 percent increase. For the 12 months ending in April, U.S. prices rose 3.0 percent. The U.S.index is 17.6 percent below its April 2007 peak and is roughly the same as the April 2004 index level.

Firms responding to the June Business Outlook Survey indicated weaker business conditions this month. The survey’s indicators for general activity, new orders, shipments, and average work hours were all negative this month, suggesting overall declines in business. Input price pressures were less in evidence this month, with more firms reporting declines in input prices. And for the second consecutive month, more firms reported declines in prices for their products than reported increases. The survey’s indicators of future activity remained positive and improved slightly, suggesting that the current weakness in activity is expected to be short‐lived.

Indicators Suggest Decreases in Activity The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, fell from a reading of ‐5.8 in May to ‐16.6, its second consecutive negative reading (see Chart 1). Nearly 40 percent of the firms reported declines in activity this month, exceeding the 22 percent that reported increases in activity. Indexes for new orders and shipments also showed notable declines, falling 18 and 20 points, respectively. Indexes for current unfilled orders and delivery times both registered negative readings again this month, suggesting lower levels of unfilled orders and faster deliveries.

Firms’ responses suggest steady employment this month but shorter hours. The percentage of firms reporting higher employment (14 percent) edged out the percentage reporting lower employment (12 percent). The current employment index increased 3 points this month. Firms indicated fewer hours worked this month: the average workweek index decreased 14 points and posted its third consecutive negative reading.

Limited supplies of housing inventory held back existing-home sales in May, but sales maintained a strong lead over year-ago levels and home prices are on a sustained uptrend in all regions, according to the National Association of Realtors.

Total existing-home sales1, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 1.5 percent to a seasonally adjusted annual rate of 4.55 million in May from 4.62 million in April, but are 9.6 percent above the 4.15 million-unit pace in May 2011.

Lawrence Yun, NAR chief economist, said inventory shortages in certain areas have been building all year. “The slight pullback in monthly home sales is more likely due to supply constraints rather than softening demand. The normal seasonal upturn in inventory did not occur this spring,” he said. “Even with the monthly decline, home sales have moved markedly higher with 11 consecutive months of gains over the same month a year earlier.”

30-year fixed-rate mortgage (FRM) averaged 3.66 percent with an average 0.7 point for the week ending June 21, 2012, down from last week when it averaged 3.71 percent. Last year at this time, the 30-year FRM averaged 4.50 percent.

15-year FRM this week averaged 2.95 percent with an average 0.6 point, down from last week when it averaged 2.98 percent. A year ago at this time, the 15-year FRM averaged 3.69 percent.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.77 percent this week, with an average 0.6 point, down from last week when it averaged 2.80. A year ago, the 5-year ARM averaged 3.25 percent.

1-year Treasury-indexed ARM averaged 2.74 percent this week with an average 0.5 point, down from last week when it averaged 2.78 percent. At this time last year, the 1-year ARM averaged 2.99 percent.

Current levels are close to unchanged from before this morning's Jobless Claims numbers, which themselves, were heading into slightly stronger territory on Euro market weakness.

Stocks and bond yields leaked lower in Asian hours and reversed course, growing more volatile in European hours. But the highs and lows of the overnight and early domestic sessions have been contained inside yesterday's highs and lows. Yields and stock prices peaked just before 7:50am and Treasuries have been very slightly improved since then while stocks move in a more sideways pattern.

Both sides of the market have shown little regard for this morning's tepid Jobless Claims report, instead trading flows and technicals while following European news and market movements. In short, it looks like domestic markets' volition slept-in this morning, opting to wait for the most interesting report of the morning at 10am with Philly Fed.

Fannie 3.5 MBS are currently up 2 ticks on the day at 104-28 and 10yr yields are don just under 1 bp to 1.642. Stock futures are 2 pts above yesterday's 4pm levels in the S&P.

* Claims 387k vs 380k Consensus, 389k Previous
* 4 Week Moving Average 386.25k vs 382k last time

In the week ending June 16, the advance figure for seasonally adjusted initial claims was 387,000, a decrease of 2,000 from the previous week's revised figure of 389,000. The 4-week moving average was 386,250, an increase of 3,500 from the previous week's revised average of 382,750.

The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending June 9, unchanged from the prior week's unrevised rate.

The advance number for seasonally adjusted insured unemployment during the week ending June 9 was 3,299,000, unchanged from the preceding week's revised level. The 4-week moving average was 3,293,750, an increase of 5,250 from the preceding week's revised average of 3,288,500.