MBS Pricing Snapshot

With respect to the last brief update ahead of the Consumer Confidence report that said:

"Very likely, we're seeing a bit of a "lead off" ahead of the Consumer Confidence report with Treasuries and MBS ready to weaken further on a big beat, or bounce back into the middle of the range on a disappointing headline."

The latter is essentially what we're seeing now. It hasn't been a rousing, triumphant return to epic levels for MBS or Treasuries, but both are notably off their weakest levels after the lowest Consumer Confidence reading since January. Versus the consensus, however, it wasn't a horrible miss, and thus we're not seeing a major correction.

Fannie 3.0's down 5 ticks on the day now at 102-18 and 3.5's also down 4 at 105-03. 10yr yields back under 1.64, but only just. Stocks hesitated on selling more following the confidence numbers, but look more willing now, and that looks to be helping bond markets, or at the very least, coinciding with their renewed levity.

The Conference Board Consumer Confidence Index®, which had declined in May, fell further in June. The Index now stands at 62.0 (1985=100), down from 64.4 in May. The Expectations Index declined to 72.3 from 77.3. The Present Situation Index, however, increased to 46.6 from 44.9 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 14.

Says Lynn Franco, Director of Economic Indicators at The Conference Board: "Consumer Confidence declined in June, the fourth consecutive moderate decline. Consumers were somewhat more positive about current conditions, but slightly more pessimistic about the short-term outlook. Income expectations, which had improved last month, declined in June. If this trend continues, spending may be restrained in the short-term. The improvement in the Present Situation Index, coupled with a moderate softening in consumer expectations, suggests there will be little change in the pace of economic activity in the near-term."

Just a quick heads up on a bit of incremental weakness this morning. Bond markets did their characteristic mini range consolidation heading into the 9:30am cash open for stocks. Stocks opened higher and bond yields followed. At this point though, stocks have hit a ceiling while bond markets are looking less willing to quickly reverse the selling trend.

Very likely, we're seeing a bit of a "lead off" ahead of the Consumer Confidence report with Treasuries and MBS ready to weaken further on a big beat, or bounce back into the middle of the range on a disappointing headline. Fannie 3.0's are down 6 ticks at 102-16 and 3.5's are down 6 ticks at 105-01. 10yr yields briefly hit 1.65's and currently sit at 1.6485

Treasuries began the overnight session in slightly weaker territory and moved slightly higher in yield in the European session. Overall, things continued to be uneventful, ranges narrow, and volume low. 10yr yields hit 1.64 just before the domestic open and revisited it moment ago following the stronger-than-expected Case-Shiller data.

MBS opened slightly off yesterday's highs and have notched lower again after the data, but remain well inside yesterday's range with Fannie 3.0's currently down 5 ticks at 102-19 and Fannie 3.5's down 3 ticks at 105-03. So far, bond markets look "bouncy" in lieu of breaking into technically weaker territory.

The next data on tap arrives at 10am with Consumer Confidence. We don't see this afternoon's 2yr auction as causing much, if any, drama for production MBS, and indeed reserve the drama-causing roles either for data that's wildly different than the consensus, or unexpected Euro-headlines.

* 20 City Index +0.7 (SA) vs +0.4 Consensus
* +1.3 (Not seasonally adjusted) vs +0.5 Consensus

New York, June 26, 2012 – Data through April 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 on average home prices increased 1.3% in the month of April for both the 10- and 20-City Composites. This comes after seven consecutive months of falling home prices as measured by both indices.

April’s data indicate that on an annual basis home prices fell by 2.2% for the 10-City Composite and by 1.9% for the 20-City Composites, versus April 2011. While still negative, this is an improvement over the annual rates of -2.9% and -2.6% recorded for the month of March 2012. Both Composites and 18 of the 20 MSAs saw increases in annual returns in April compared to those published for March; only Detroit and New York fared worse in April, posting annual returns of +1.2% and -3.8% respectively, falling below their March returns of +3.9% and -3.0%. For the seventh consecutive month, Atlanta posted the only doubledigit negative annual return at -17.0%, its 22nd consecutive month of negative annual returns. Ten of the 20 MSAs saw positive annual returns – Boston, Charlotte, Dallas, Denver, Detroit, Miami, Minneapolis, Phoenix, Tampa and Washington D.C. No cities posted new lows in April 2012.

The average interest rate on conventional, 30-year, fixed-rate mortgage loans of $417,000 or less decreased 17 basis points to 4.04 in May. These rates are calculated from the FHFA’s Monthly Interest Rate Survey of purchase-money mortgages (see technical note). These results reflect loans closed during the May 25 - 31 period. Typically, the interest rate is determined 30 to 45 days before the loan is closed. Thus, the reported rates depict market conditions prevailing in mid- to late-April.

The contract rate on the composite of all mortgage loans (fixed- and adjustable-rate) was 3.78 percent in May, down 15 basis points from 3.93 percent in April. The effective interest rate, which reflects the amortization of initial fees and charges, was 3.91 percent in May, down 12 basis points from 3.91 percent in April.

May 2012 Highlights:

-The total mortgage portfolio decreased at an annualized rate of 9.4% in May.

-Single-family refinance-loan purchase and guarantee volume was $22.1 billion in May, representing 72% of total mortgage portfolio purchases and issuances.

-Total number of loan modifications were 5,091 in May 2012 and 22,222 for the five months ended May 31, 2012.

-The aggregate unpaid principal balance (UPB) of our mortgage-related investments portfolio decreased by approximately $9.5 billion in May.

-Freddie Mac mortgage-related securities and other guarantee commitments decreased at an annualized rate of 9.7% in May.

-Our single-family seriously delinquent rate decreased from 3.51% in April to 3.50% in May. Our multifamily delinquency rate increased from 0.25% in April to 0.26% in May.

-The measure of our exposure to changes in portfolio market value (PMVS-L) averaged $148 million in May. Duration gap averaged 0 months.

-On September 6, 2008, the Director of the Federal Housing Finance Agency (FHFA) appointed FHFA as Conservator of Freddie Mac.