MBS Pricing Snapshot

- Factory Orders +0.7 vs +0.2 Consensus and -0.7 in April
- Excluding Transportation +0.4 vs -0.9 in April
- May Durable Goods revised to +1.3 from +1.1
- A relatively upbeat report and far enough ahead of
consensus to have a bit of a negative implication for bond markets, though the backward-looking nature of the data lessens its impact

New orders for manufactured goods in May, up following two consecutive monthly decreases, increased $3.3 billion or 0.7 percent to $469.0 billion, the U.S. Census Bureau reported today. This followed a 0.7 percent April decrease. Excluding transportation, new orders increased 0.4 percent.

Shipments, up five of the last six months, increased $2.3 billion or 0.5 percent to $476.0 billion. This followed a 0.2 percent April decrease.

Unfilled orders, down two consecutive months, decreased $0.4 billion to $984.4 billion. This followed a 0.1 percent April decrease. The unfilled orders-toshipments ratio was 6.25, down from 6.33 in April.

Inventories, also down two consecutive months, decreased $1.4 billion or 0.2 percent to $604.5 billion. The inventories-to-shipments ratio was 1.27, down from 1.28 in April.

With a 2pm early close and the lightest morning of economic data on tap, the domestic session has gotten off to an as-expected slow start. Not only is the data relatively less interesting as yesterday's (or as Thursday's and Friday's will be), but it doesn't hit until 9:45am and 10am, leaving plenty of time for apathy in the meantime.

Apathy was present in the overnight session as well. Indeed the FLATNESS of bond markets in the European hours was a rare treat, as 10yr yields tested 1.5987 upwards of 20 times from 2am to 6:30am, all the while holding roughly a ONE bp range.

In that sense, the overnight session was even slower than the domestic session has been thus far. As stateside accounts wake up and start trading, we're seeing purely flow-based weakness carry Treasuries a few bps higher with 10yr yields currently between 1.60 and 1.61. There's no news driving it though (or much volume), and with 30's being the worst performer, and successively shorter duration Treasuries being incrementally and relatively stronger, it seems that we're simply watching some curve-steepening bets play out ahead of the stock market open, morning data, and mid-week break.

The "steepening" is perceivable in MBS as well where the longer duration, lower coupons are a tick in the red while the faster/higher coupons are a tick in the green. Fannie 3.0s and 3.5s are each down 1 at 102-31 and 105-14 respectively. Best case scenario for today would be to see yesterday's post-10am lows hold up as a sort of supportive shelf for MBS prices. Even then, as long as 10yr yields are between 1.56 and 1.68, "nothing much™" is happening. In other words, we won't infer much significance from anything but a break outside those levels. Everything else just amounts to range-trading in a strategic sense. Fannie 3.0s could shed 12 ticks today and still remain in a broader uptrend.