MBS Pricing Snapshot

* Inventories as expected at +0.3
* Sales drop at quickest pace since 3/2009
* Drop in sales largely attributable to falling crude prices.
* As per usual, not much by way of volume or price movement as a result of this report. The U.S. Census Bureau announced today that April 2012 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $415.0 billion, up 1.1 percent (+/-0.5) from the revised March level and were up 6.8 percent (+/-0.9%) from the April 2011 level. The March preliminary estimate was revised downward $0.5 billion or 0.1 percent. April sales of durable goods were up 0.1 percent (+/-0.9%)* from last month and were up 8.1 percent (+/-0.9%) from a year ago. Sales of motor vehicle and motor vehicle parts and supplies were up 3.8 percent from last month. Sales of nondurable goods were up 1.9 percent (+/-0.7%) from March and were up 5.9 percent (+/-1.2%) from last April. Sales of petroleum and petroleum products were up 4.8 percent from last month and sales of farm product raw materials were up 4.2 percent.

Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $483.5 billion at the end of April, up 0.6 percent (+/-0.4%) from the revised March level and were up 8.2 percent (+/- 1.1%) from the April 2011 level. The March preliminary estimate was revised upward $0.1 billion. April inventories of durable goods were up 1.1 percent (+/-0.4%) from last month and were up 11.4 percent (+/-1.6%) from a year ago. Inventories of machinery, equipment, and supplies were up 2.4 percent from last month and inventories of lumber and other construction materials were up 1.9 percent. Inventories of nondurable goods were down 0.1 percent (+/-0.5%)* from March, but were up 4.0 percent (+/-1.8%) from last April. Inventories of drugs and druggists' sundries were down 2.4 percent from last month, while inventories of paper and paper products were up 3.9 percent.

In one of the most uneventful overnight sessions in recent memory, 10yr yields held inside a trend channel less than 1bp wide, with yields rising very slightly throughout the night. All told, 10's hit 1.524 ahead of the domestic open. Before getting a chance to drift any higher, a good surge of buying in German Bunds (said to be flow-related in that a strong Bund auction overnight got yields low enough to trigger short-covering stops, making for a mini snowball just before 8am) helped usher US 10's back to 2 day lows around 1.50.

Volume was exceedingly light for the 3rd session in a row, and the day-over-day change was minimal. 10's are currently very close to unchanged levels at 1.5014 and production MBS are similarly unchanged, or close to it. Fannie 3.0s are -0-01 at 103-17 currently and 3.5s are +0-00 at 105-26 (keep in mind that prices will LOOK much lower on charts today due to the roll, but in fact, this is only the case due to August MBS occupying the right side of the chart vs recently retired July MBS on the left side--assuming you're looking at Fannie/Freddie 30yr coupons). Stock Futures are close to unchanged as well ahead of the domestic stock market open.

All of this "unchangedness" contributes to the sense that this afternoon's FOMC minutes may be somewhat more hotly anticipated than has been let on. In one sense, the Fed has recently done a good job of communicating the "if's and then's" of potential QE3, but in another, we haven't necessarily gotten a unified message from recent instances of Fed-speak.

Perhaps the minutes will help clarify those "if's and then's," and thus FINALLY be THE thing that gets markets moving in one direction or another. It seems like there's more consensus out there that today should be a tough day for bond markets considering the need to accommodate 10yr auction supply at 1pm and what many view as technical resistance to moving lower in yield, but just to keep the outlook balanced, we'd note that we heard similar grumblings over the last 2 days, and bond markets rallied anyway. Bottom line, there's no default path for bond markets in the current environment and the day's ultimate directionality looks increasingly likely to be decided by the FOMC minutes, barring a significant headline in the interim.

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total May exports of $183.1 billion and imports of $231.8 billion resulted in a goods and services deficit of $48.7 billion, down from $50.6 billion in April, revised. May exports were $0.4 billion more than April exports of $182.7 billion. May imports were $1.6 billion less than April imports of $233.3 billion.

In May, the goods deficit decreased $1.6 billion from April to $63.5 billion, and the services surplus increased $0.3 billion from April to $14.8 billion. Exports of goods were virtually unchanged at $130.7 billion, and imports of goods decreased $1.6 billion to $194.3 billion. Exports of services increased $0.3 billion to $52.4 billion, and imports of services increased $0.1 billion to $37.5 billion.

The goods and services deficit increased $1.0 billion from May 2011 to May 2012. Exports were up $7.4 billion, or 4.2 percent, and imports were up $8.4 billion, or 3.8 percent.