MBS Pricing Snapshot

Pending home sales bounced back in May, matching the highest level in the past two years, and are well above year-ago levels, according to the National Association of Realtors. Both monthly and annual gains were seen in every region.

The Pending Home Sales Index rose 5.9 percent to 101.1 in May from 95.5 in April and is 13.3 percent above May 2011 when it was 89.2. The data reflect contracts but not closings.

The index also reached 101.1 in March, which is the highest level since April 2010 when buyers were rushing to beat the deadline for the home buyer tax credit.

Lawrence Yun, NAR chief economist, said longer term comparisons are more relevant. “The housing market is clearly superior this year compared with the past four years. The latest increase in home contract signings marks 13 consecutive months of year-over-year gains,” he said. “Actual closings for existing-home sales have been notably higher since the beginning of the year and we’re on track to see a 9 to 10 percent improvement in total sales for 2012.”

The overnight session was utterly devoid of passion, intention, and directionality for bond markets as 10yr yields adhered perfectly to a trend line moving gradually higher resting on the lows of the week. Volume has really ground to a halt here ahead of the EU Summit and combined with the gigantic triangular trading pattern in June, leaves no doubt as to the markets' current focus.

In the spirit of being highly on-edge concerning EU-related headlines, comments from German FinMin Schaeuble garned significantly more response from markets this morning than the Durable Goods report. It wasn't so much that the comments were ground-breaking or even constituted any departure from the characteristically 'fed up with Greece' Schaeuble, but they did serve to remind us that any major move toward EU fiscal unity will be a tall order today and tomorrow.

Treasuries saw their biggest pop of volume of the morning as a result and their sharpest bounce lower since yesterday's session. Bond markets greened back up after a slightly red morning and promptly settled into safe, familiar, sideways patterns to wait for the domestic cash open for stocks. The latter is currently helping reinforce the 1.616 floor in 10's and actually has Fannie 3.5's 1 tick into the red at the moment.

Bigger picture though, nothing's changed and nothing's really going on until tomorrow and the next day, barring a major unexpected headline that causes some "front-running" of the EU Summit. Shocking deviations from expectations in Pending Home Sales at 10am or the 5yr Note Auction at 1pm can serve as only minor course corrections in a bigger picture that continues to consolidate ahead of bigger considerations.

Read more about the consolidation ahead of the EU Summit and see charts here:

* Excluding Transportation +0.4 vs +0.7 Consensus, making the stronger headline reading a bit of a mixed bag.

From the Census Bureau:

New orders for manufactured durable goods in May increased $2.3 billion or 1.1 percent to $217.2 billion, the U.S. Census Bureau announced today. This increase, up following two consecutive monthly decreases, followed a 0.2 percent April decrease. Excluding transportation, new orders increased 0.4 percent. Excluding defense, new orders increased 0.7 percent.

Transportation equipment, up three of the last four months, had the largest increase, $1.7 billion or 2.7 percent to $63.1 billion. This was led by nondefense aircraft and parts, which increased $0.4 billion.