MBS Pricing Snapshot

Bond markets have entered a sort of 'happy limbo,' with prices still near their lows of the day (or yields near their highs), but showing some signs of support versus the most recent bout of selling post-10am data. The tricky thing about such instances of "potential support" is that they look perfectly at home both in the context of a supportive bounce OR as a mere pause for consolidation before continuing in the same direction.

To that end, it's VERY important to note that nothing about the recent bounce yet confirms we've broken from the selling trend. 10yr yields are still pointed directionally higher from 5am and could even fall a bit further in yield while still remaining in the uptrend.

The counterpoint is that we have the beginnings of a nice horizontal pivot point just a hair over 2.60 that coincides with several prominent lows and highs from yesterday's session in 10yr yields. MBS are similarly regaining some composure right in line with yesterday afternoon's supportive lows. If these technical lines in the sand continue to hold, negative reprice risk is vastly diminished.

Fannie 3.5s are currently down 6 ticks at 100-02 and 10's are up 3bps on the day at 2.5744.

No telling if MBS are about to experience an epic, supportive bounce right in line with yesterday's lows, but for now, we're free-falling. Fannie 3.5s down 9 ticks at 99-31 and 10's have spiked up over 2.60. If you had access to rates before 10am, reprice risk is extreme.

- New Home Sales 476k unit annual rate vs 462k forecast
- Previous report revised to 466k from 454k
- Northeast/Midwest surge, South declines
- Supply 4.1 months vs 4.0 previously
- Median Price $263.9k, +10.3 pct year/year gain

- Market Reaction: hard to assign much to this report in light of the stronger-than-expected Consumer Confidence numbers released at the same time.

Sales of new single-family houses in May 2013 were at a seasonally adjusted annual rate of 476,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.1 percent (±16.6%)* above the revised April rate of 466,000 and is 29.0 percent (±17.5%) above the May 2012 estimate of 369,000.

The median sales price of new houses sold in May 2013 was $263,900; the average sales price was $307,800. The seasonally adjusted estimate of new houses for sale at the end of May was 161,000. This represents a supply of 4.1 months at the current sales rate.

- June Consumer Confidence 81.4 vs 75.4 consensus
- May Consumer Confidence revised to 74.3 from 76.2
- Present Situation 69.2 vs 64.8 previously
- Inflation Expectations 5.5 pct vs May 5.3 pct
- Confidence highest since January 2008

- Market Reaction: Bond Markets at weakest levels of the morning.

The Conference Board Consumer Confidence Index®, which had improved in May, increased again in June. The Index now stands at 81.4 (1985=100), up from 74.3 in May. The Present Situation Index increased to 69.2 from 64.8. The Expectations Index improved to 89.5 from 80.6 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 June 13.

Says Lynn Franco, Director of Economic Indicators at The Conference Board: “Consumer Confidence increased for the third consecutive month and is now at its highest level since January 2008 (Index 87.3). Consumers are considerably more positive about current business and labor market conditions than they were at the beginning of the year. Expectations have also improved considerably over the past several months, suggesting that the pace of growth is unlikely to slow in the short-term, and may even moderately pick up.”

Looks like Consumer Confidence is the primary factor here, but prices are extending weakness following data. Home sales were slightly better than expected, but confidence came in at 81.4 vs 75.4 Consensus. MBS are another tick lower and 10's just jumped to their highs of the morning at 2.574 and climbing.

Just a quick note ahead of the 10am data that MBS are back in line with lows from earlier this morning, and possible moving through them. Fannie 3.5s are still UP 3 ticks at 100-10, though this is down 7 ticks from the first rate sheets of the day. Back in the olden days (a few weeks ago), this would almost always be "negative reprice risk" territory, but given the size of recent swings, that's less of a certainty this morning (though still a risk). It may well be the case the risk is more clearly pronounced if data adds to this negative momentum and that the risk subsides almost completely if we're holding ground or improving after data.

- FHFA Home Prices +0.7 pct in April
- +7.4 pct year-over-year

Washington, DC – U.S. house price appreciation continued in April 2013, rising 0.7 percent on a seasonally adjusted basis from the previous month, according to the Federal Housing Finance Agency (FHFA) House Price Index (HPI). The previously reported 1.3 percent increase in March was revised upward to a 1.5 percent increase. This HPI change is the fifteenth consecutive monthly price increase in the purchase-only, seasonally adjusted index.

The HPI is calculated using home sales price information from mortgages either sold to or guaranteed by Fannie Mae and Freddie Mac. Compared to April 2012, house prices were up 7.4 percent in April. The U.S. index is 11.7 percent below its April 2007 peak and is roughly the same as the January 2005 index level.

For the nine census divisions, seasonally adjusted monthly price changes from March to April ranged from -0.2 percent in the New England division to +2.2 percent in the Mountain division, while the 12-month changes ranged from +2.9 percent in the Middle Atlantic division to +17.1 percent in the Pacific division.

Equities weakness in the Asian session actually helped fuel the first clear-cut "risk-off" movement we've seen since last week's FOMC. As opposed to the "QE on/off" trading motivated by FOMC reaction (where bonds and stocks sell-off together), the more traditional "risk on/off" trading sees bonds rally while stocks sell. As such, 10's shed more than 4bps during the Asian equities slide and proceeded to cut out a choppy sideways range heading into domestic hours.

Nearly 10 minutes before the Durable Goods data, volume and activity were already exploding with gratitude for the break under 2.5, expressed in the form of profit-taking. Stronger-than-expected Durables data merely greased the skids for that move to continue, BUT (and this is the most exciting part of the morning so far, to the extent that we'd still condone any sort of positive excitement), the selling stalled out just before 9am and 10's are back in the green by roughly 1.5bps.

All of the above amounted to MBS opening well into positive territory, losing ground concomitantly with the Treasury profit-taking and bouncing back at the same time. Fannie 3.5s are up 10 currently at 100-17 and 4.0s are up 6 ticks at 103-10.

New Home Sales and Consumer Confidence hit at 10am. We'd not that Durable Goods had quite a limited impact on trading activity (given the it acted more to give a slight push to a preexisting move and didn't prompt any follow-through) considering it was a less-than-inconsequential beat. This is in line with our expectations of data today, so the bar stays high for the 10am data to have a significant impact vs prevailing momentum. The only cautionary note is that bond markets have been trending moderately weaker since 5am, in a fairly linear pattern.

- Prices +1.7 Seasonally Adjusted (SA) vs +1.2 forecast
- Prices + 2.5 vs 1.1 forecast (non-adjusted)
- +12.1 vs +10.6 year over year
- Largest increase since March 2006

- Market Reaction: Little by way of reaction in MBS or Treasuries. 10's still close to unchanged and MBS slightly positive.

Data through April 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, showed average home prices increased 11.6% and 12.1% for the 10- and 20-City Composites in the 12 months ending in April 2013. From March to April, the 10- and 20-City Composites rose 2.6% and 2.5%.

All 20 cities and both Composites showed positive year-over-year returns for at least the fourth consecutive month. Atlanta, Dallas, Detroit and Minneapolis posted their highest annual gains since the start of their respective indices. On a monthly basis, all cities with the exception of Detroit posted positive change.

- Durable Goods +3.6 vs +3.0 Forecast
- Excluding Transportation +0.7 vs +0.0 Forecast


Market Reaction: Treasuries extend weakness coming off morning's low yields just under 2.5. Hit 2.522 before data, now up to 2.5332.

New orders for manufactured durable goods in May increased $8.0 billion or 3.6 percent to $231.0 billion, the U.S. Census Bureau announced today. This increase, up three of the last four months, followed a 3.6 percent April increase. Excluding transportation, new orders increased 0.7 percent. Excluding defense, new orders increased 3.5 percent.

Transportation equipment, also up three of the last four months, led the increase, $6.9 billion or 10.2 percent to $74.3 billion. This was led by nondefense aircraft and parts, which increased $6.3 billion.