MBS Pricing Snapshot

30-year fixed-rate mortgage (FRM) averaged 3.56 percent with an average 0.7 point for the week ending July 12, 2012, down from last week when it averaged 3.62 percent. Last year at this time, the 30-year FRM averaged 4.51 percent.

15-year FRM this week averaged 2.86 percent with an average 0.7 point, down from last week when it averaged 2.89 percent. A year ago at this time, the 15-year FRM averaged 3.65 percent.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.74 percent this week, with an average 0.6 point, down from last week when it averaged 2.79 percent. A year ago, the 5-year ARM averaged 3.29 percent.

1-year Treasury-indexed ARM averaged 2.69 percent this week with an average 0.4 point, up from last week when it averaged 2.68 percent. At this time last year, the 1-year ARM averaged 2.95 percent.

We have to let you know about an error in our analysis this morning. It concerns the following paragraph from this morning's "day ahead" post (full post linked below):

On today's data calendar, there's Jobless Claims, with us as always. Forecasts call for 376k vs last week's 374k. Anything close to that is boring and a non-issue for bond markets. Import/Export Prices occupy the same 8:30am time slot and also compete with Jobless Claims (assuming Claims prints anywhere close to consensus) for the "report least likely to move markets."

We then apologized for being a bit cynical about the market moving potential of the reports. Our mistake was that we were not cynical enough! Although markets tend to not get too excited about one outlying Jobless Claims print that covers a holiday-shortened week, the 350k headline this morning was arguably not "close" to the 376k consensus, yet bond markets not only failed to sell-off, but actually rallied a bit. We're very sorry and will try to be more cynical next time.

There were some redeeming qualities of the morning analysis though... "Bundwatch," for instance, was an instant classic overnight as Treasuries, and stock futures for that matter, almost perfectly mirrored and matched EU Benchmarks throughout the night. We also mentioned this afternoon's 30yr Bond Auction and still think that's a decent candidate for market movement, even if it doesn't break any ranges or trends.

For MBS, today's challenge will be one of supply. This began yesterday as the supply/demand equation got lopsided in the afternoon, causing MBS prices to leak out rather painfully. And now this morning, originators are already stacking up crates of freshly minted 3.0's on the proverbial 'street.' To make matters slightly more challenging, we've been hearing from an increasing number of desks that it's time to be a little less "buy buy buy, no questions asked" on MBS, and to let things widen a bit before reentering long positions on MBS vs Benchmarks (Treasuries, Swaps, etc..)

Essentially, that leaves us with a one/two punch for MBS expected today where they won't seem to mind underperforming Treasuries to a certain extent, and where supply would weigh on prices anyway. In other words, this probably won't be one of those days where Treasuries go red and MBS manage to stay green. Things can change fairly quickly though... and we'll let you know if they do.

* Import Prices -2.7pct vs -1.7 pct consensus
* Export Prices -1.7 pct vs -0.3 pct consensus
* Petroleum import prices -10.5 pct
* Excluding Petroleum, Import Prices -0.3 pct

U.S. import prices fell 2.7 percent in June, the U.S. Bureau of Labor Statistics reported today, following a 1.2 percent decrease in May. Lower prices for both fuel and nonfuel imports contributed to the overall decline. U.S. export prices fell 1.7 percent in June after a 0.4 percent drop the previous month.

* Claims fall to 350k vs 372k consensus
* Previous week revised from 374k to 372k
* Lowest level since march 2008, yet bond markets didn't sell off. Sign of the times...

In the week ending July 7, the advance figure for seasonally adjusted initial claims was 350,000, a decrease of 26,000 from the previous week's revised figure of 376,000. The 4-week moving average was 376,500, a decrease of 9,750 from the previous week's revised average of 386,250.

The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending June 30, unchanged from the prior week's unrevised rate.

The advance number for seasonally adjusted insured unemployment during the week ending June 30 was 3,304,000, a decrease of 14,000 from the preceding week's revised level of 3,318,000. The 4-week moving average was 3,308,500, an increase of 1,250 from the preceding week's revised average of 3,307,250.