MBS Pricing Snapshot

Following the news that the Supreme Court upheld the healthcare mandate, the most notable reaction was seen in stock markets, which briefly sold off a few small points and bounced back to pre-announcement levels. Yawn....

Bond markets paid brief tribute to the move with yields notching quickly lower in good volume, but only by microscopically small amounts relative to the "hype." For instance, 10yr yields dipped less than 0.01 and bounced right back again with stocks. Double yawn....

All that having been said, both of the above metrics appear to be failing to break back into pre-announcement territory at the moment, a fact that benefits bond markets. 10's are down to 1.575, Fannie 3.0s are up 8 ticks to 102-29, and 3.5s are up 6 ticks to 105-09. This is the first time that 3.0's have broken 102-24 since early June, but it's important to note that this break occurred before the healthcare news, with the latter instead merely helping MBS hold the gains.

It's a bit too early in the morning and the gains not quite big enough from rate sheet time to suggest much likelihood of positive reprices, so we're right back to watching for EU headlines, and to a lesser extent, tuning in to the 7yr auction at 1pm.

-30-year fixed-rate mortgage (FRM) averaged 3.66 percent with an average 0.7 point for the week ending June 28, 2012, the same as last week. Last year at this time, the 30-year FRM averaged 4.51 percent.

-15-year FRM this week averaged 2.94 percent with an average 0.7 point, down from last week when it averaged 2.95 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 2.79 percent this week, with an average 0.6 point, up from last week when it averaged 2.77. A year ago, the 5-year ARM averaged 3.22 percent.

-1-year Treasury-indexed ARM averaged 2.74 percent this week with an average 0.4 point, the same as last week. At this time last year, the 1-year ARM averaged 2.97 percent.

The overnight session started off dead flat during Asian hours. A decisive and unified move into stronger territory followed in European hours fueled by several factors including, but not limited to weaker German employment figures, weaker Euro-zone economic sentiment (shocker), and statements out of Germany dissuading expectations of anything meaningful coming out of Today/Tomorrow's EU Summit.

10's fell from roughly 1.63 to 1.59 and treated that as a mid point for some choppy sideways movement ever since. The Euro and Stock markets all generally joined in the move away from risk. By 8am, MBS were opening up a few ticks higher in both Fannie 3.0's and 3.5's. The passing of the domestic data this morning (GDP and Jobless Claims) left trading levels unchanged to slightly improved from opening levels.

Fannie 3.0's are currently up 3 ticks at 102-24 and 3.5's are up 2 ticks to 105--06. 10yr yields are down 2.5 bps to 1.5955 (we'd note that 1.59 provided firm resistance overnight, seeing 3 solid bounces, and another one just after the 830am data), and S&P futures are off about 7 points.

Next events on the radar are the 7yr Auction at 1pm and of course the trickling-in of EU Summit headlines throughout the morning.

* Regardless of the previous week's upward revision from 387k to 392k, Jobless Claims still technically fell, coming in at 386k. The consensus called for 385k. Non-event, but we'd note that "flatness" in the claims series here in the high 300's isn't as consistent with the QE3 hurdle laid out by the Fed in that it doesn't show a deteriorating labor market, just a stagnant one.

From the DOL:

In the week ending June 23, the advance figure for seasonally adjusted initial claims was 386,000, a decrease of 6,000 from the previous week's revised figure of 392,000. The 4-week moving average was 386,750, a decrease of 750 from the previous week's revised average of 387,500.

The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending June 16, unchanged from the prior week's unrevised rate.

The advance number for seasonally adjusted insured unemployment during the week ending June 16 was 3,296,000, a decrease of 15,000 from the preceding week's revised level of 3,311,000. The 4-week moving average was 3,306,000, an increase of 9,250 from the preceding week's revised average of 3,296,750.

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.9 percent in the first quarter of 2012 (that is, from the fourth quarter to the first quarter), according to the "third" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 3.0 percent.

The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was also 1.9 percent (see "Revisions" on page 3).

The increase in real GDP in the first quarter reflected positive contributions from personal consumption expenditures (PCE), exports, residential fixed investment, nonresidential fixed investment, and private inventory investment that were partly offset by negative contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the first quarter primarily reflected decelerations in private inventory investment and in nonresidential fixed investment that were partly offset by accelerations in PCE, in exports, and in residential fixed investment and a deceleration in imports.