MBS Live: MBS Morning Market Summary
The bulk of the "story" of this morning is in the first update (at the bottom of the "Morning Reprice Alerts and Updates" list below).  The moral of the story is that the morning's weakness was largely incidental and that if you're looking for causality beyond that, you could blame European markets, technical resistance, and an auction concession for today's 2yr issuance at 1pm.  That said, 'looking for causality' makes even less sense now, in light of the fact that bond markets have recovered a majority of the day-over-day losses.  This is a symptom of the "incidental" assessment.  Nothing much is happening.  The stock lever has also emerged as something of a factor in the absence of anything of more direct interest to bond markets (stocks at least have earnings season in progress).  That's not to say that Treasury yields and stock prices will be joined at the hip (especially around "Treasury-specific" events like Fed buying or the auction), but concerted shifts in equities are simply "eligible" motivations for bond markets on a day with little else to watch.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
97-17 : -0-07
FNMA 3.5
101-10 : -0-05
FNMA 4.0
104-07 : -0-03
FNMA 4.5
106-04 : -0-02
GNMA 3.0
98-17 : -0-06
GNMA 3.5
102-09 : -0-04
GNMA 4.0
104-23 : -0-01
GNMA 4.5
106-12 : -0-01
FHLMC 3.0
97-07 : -0-07
FHLMC 3.5
101-01 : -0-05
FHLMC 4.0
104-01 : -0-03
FHLMC 4.5
105-16 : -0-02
Pricing as of 11:05 AM EST
Morning Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribers this morning.

10:15AM  :  ECON: Richmond Fed Index Much Weaker Than Expected
- Richmond Fed Manufacturing -11 vs +7 previously
- 'Shipments -15 vs +11 previously

Market Reaction: This report is not typically a market mover, but much like the Richmond Fed index in July 2012, this one was bad enough that we can't rule out a positive impact for bond markets and a negative impact for equities. In other words, if it did anything, it helped slightly.

Manufacturing activity in the central Atlantic region declined in July, according to the most recent survey by the Federal Reserve Bank of Richmond.* Shipments, new orders, backlogs, and capacity utilization fell this month. Vendor lead-time remained virtually unchanged, while finished goods inventories rose more quickly. On the employment front, hiring and the average workweek flattened. Average wages rose more slowly than in June.

Looking ahead six months, manufacturers were optimistic about business. Expectations were for stronger new orders and shipments, along with a rise in capacity utilization. However, hiring expectations were muted and expected changes in the average workweek remained moderate. In contrast, producers looked for stronger wage growth and they also expected to increase capital expenditures in the months ahead.
9:08AM  :  ECON: FHFA House Price Index Up 0.7 Percent in May
U.S. house price appreciation continued in May 2013, rising 0.7 percent on a seasonally adjusted basis from the previous month, according to the Federal Housing Finance Agency (FHFA) monthly House Price Index (HPI). The May HPI change marks the sixteenth consecutive monthly price increase in the purchase-only, seasonally adjusted index. The previously reported 0.7 percent increase in April was revised downward to a 0.5 percent increase.

The HPI is calculated using home sales price information from mortgages either sold to or guaranteed by Fannie Mae and Freddie Mac. Compared to May 2012, house prices were up 7.3 percent in May. The U.S. index is 11.2 percent below its April 2007 peak and is roughly the same as the January 2005 index level.
9:05AM  :  Bond Markets Weaker Overnight, Climbing Back a Bit Now
Price action out of the gate this morning looks/looked much worse than the realities that created it. The somewhat significant gap between yesterday's 101-15 close in Fannie 3.5s and this morning's 101-03 lows look bigger than they otherwise might if yesterday's range wasn't a narrow 7/32nds. The same phenomenon is even more stark in 10yr yields where yesterday's range was only 2bps.

The same summertime liquidity issues that we've noted have led to "incidental" strength that could "just as easily have gone the other way" are doing just that this morning, or rather, they WERE. 10's and MBS have both bounced back a bit from their opening lows (or highs in terms of yield) so far.

Before that we had an overnight Treasury market that was brutally flat during Asian hours and relatively far more active in European hours. Core European debt sold off moderately and US Treasuries followed faithfully. Despite the existence of a few headlines and data points that could support a case for the weakness, we'd really hesitate to look at the details too closely. Again, the word of the past few weeks is "incidental" and it was the same for Europe's bond market weakness overnight.

In terms of 10yr yields domestically, it's just another small move away from 2.46, which is getting to be simply "what happens" any time we get close to 2.46. So even without Europe's overnight impact, we have the following three things in play:

1. Technical resistance floor at 2.46
2. Auction concession possibilities
3. Turnabout = fair play for recent "incidental strength."

In other words, it's weakness's turn, and with production MBS only down a quarter of a point, it could be worse. The only events of remote significance are the Fed's scheduled Treasury purchases in 6-7yr maturities at 10:15-11:00am and the afternoon's 2yr Note auction, but that's a stretch on both accounts. Fannie 3.5s are down 8 ticks (.25) at 101-07. 10's are up 3.2 bps at 2.516.
Live Chat Featured Comments
A recap of the featured comments from the MBS Live Dashboard's Live Chat feature, utilized by hundreds of industry professionals each day.

Victor Burek  :  "here is a link to report if you want to read it, http://www.richmondfed.org/research/regional_economy/surveys_of_business_conditions/manufacturing/2013/mfg_07_23_13.cfm#tabview=tab0"
Victor Burek  :  "Survey of about 100 manufacturers in the Richmond area which asks respondents to rate the relative level of business conditions including shipments, new orders, and employment;"
Matthew Graham  :  "RTRS- RICHMOND FED MANUFACTURING SHIPMENTS INDEX -15 IN JULY VS +11 IN JUNE "
Matthew Graham  :  "RTRS- RICHMOND FED COMPOSITE MANUFACTURING INDEX -11 IN JULY VS +7 IN JUNE "
Roger Moore  :  "charlotte, nc has a very tight supply. seeing bidding war in some neighborhoods but seems to simply be based on very, very low inventory and not large demand"
Hugh W. Page  :  "Tight supply in South FL. Still high level of distressed sales and a high percentage is cash (55%). Multiple offer situations of many properties. Originated in FL 94 to 07 moved to NC and came back Dec 2012. Stark changes in the market."
Jeff Anderson  :  "Just got off the phone with a buddy who's the top realtor in my town. Zero under agreements this past weekend with 9 price reductions, so he's saying things have slowed down pretty dramatic, at least in our town."
Jason Anker  :  "here is the real question. Where are your inventory levels today vs. 2-3 years ago. If they are falling have fallen then price increase right around the corner"
Joseph Watts  :  "Less distressed sales give the illusion of increases."
Michael Gillani  :  "That's the thing though, i'm not seeing distressed sales, just not the value increases they talk of"
Chris Kopec  :  "Mike.....appraisals will remain behind the curve on this because reports will continue to be weighted down by distressed sales."
Daniel Kramer  :  "not seeing it in Northern NJ, homes stil selling for far less than they sold back in 2007-2009"
Daniel Kramer  :  "these averages take the worst of the wrost that went up 20% after beign down 80% and average them in with the homes that went down 20% and now are up 5%"
Michael Gillani  :  "The home price thing still astounds me, not seeing it. Actually, I just had a purchase that was supposed to close this Friday that had the appraisal come in at $145,000 on a $164,000 contract and seller won't budge so it's dead."
Matthew Graham  :  "RTRS- U.S. HOME PRICES +7.3 PCT IN 12 MONTHS THROUGH MAY - U.S. REGULATOR "
Matthew Graham  :  "RTRS- U.S. HOME PRICES +0.7 PCT IN MAY FROM APRIL - U.S. REGULATOR "
Matthew Graham  :  "gm, yeah, back on 3.5, even if only a few days. Too many rate sheets' lower reaches will be dependent on 3.5s not to pay attention. Still pretty close to the edge and I definitely wouldn't ignore 4.0s either."
John Tassios  :  "Are we back to 3.5 Coupon?"
Victor Burek  :  "that MG guy is a pretty smart fella"
Ira Selwin  :  "If you read the Day ahead in the news stream it was mentioned that we may see some of this."
Victor Burek  :  "no roll, probably auction concession causing weakness"
Ira Selwin  :  "No, was back on the 11th"
Merrill Ross  :  "Is this a roll and drop day?"
JRS  :  "... but we're back on the 3.5 coupon. I suppose that was enough to anger the market. "
JRS  :  "What's up with the open?"
Oliver Orlicki  :  "Ugly open"

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