MBS Pricing Snapshot

Bond markets began the overnight session holding relatively flat during Asian hours, expressing a bit more volatility during the European hours. European data could be discussed, and may have even had a slight effect on trading levels, but the emphasis would be on "slight" and "may have." Therefore, "could" becomes "won't" and we'll instead focus on the 'inside session' currently in the works.

An 'inside day' simply means that the price or yield of a charted security is trading inside yesterday's range. It can connote more indecision, less conviction, less momentum, and a general sense of waiting for more inspiration before embarking on the next journey. That's the spot in which bond markets find themselves this morning, following yesterday's sell-off, but in this case it's not only an inside day in terms of yesterday's range, but also in terms of the scant 3 hours of trading between 2 and 5pm.

ALL THAT HAVING BEEN SAID, we're very close to challenging the weaker side of that range now (higher in terms of Treasury yields and lower in terms of MBS prices). Fannie 3.5s are down 8 at 100-12 and Fannie 4.0s are down 6 at 103-14. 10yr yields are up just over 3bps at 2.618, getting very close to the 2.62 technical support level.

The most recent bout of weakness came in a flurry following headlines from the IMF saying the EU should extend budget deficit deadlines and consider a new long-term refinancing operation. It's unclear whether this is the biggest consideration at the moment or if we're simply getting hit by tradeflows.

- Durable Goods +4.2 vs +1.3 forecast
- May revised to +5.2 from +3.7
- Excluding Transportation 0.0 vs +0.5 forecast

Market Reaction: bond markets looked to be weakening initially but held their ground before moving through to slightly stronger levels.

New orders for manufactured durable goods in June increased $9.9 billion or 4.2 percent to $244.5 billion, the U.S. Census Bureau announced today. This increase, up four of the last five months, followed a 5.2 percent May increase and was at the highest level since the series was first published on a NAICS basis in 1992. Excluding transportation, new orders increased slightly. Excluding defense, new orders increased 3.0 percent.

Transportation equipment, also up four of the last five months, led the increase, $9.9 billion or 12.8 percent to $87.1 billion. This was led by nondefense aircraft and parts, which increased $6.5 billion.

- 343k vs 340k, last week revised to 336k from 334k
- Continued Claims fell to 2.997 mln vs 3.0 mln consensus

In the week ending July 20, the advance figure for seasonally adjusted initial claims was 343,000, an increase of 7,000 from the previous week's revised figure of 336,000. The 4-week moving average was 345,250, a decrease of 1,250 from the previous week's revised average of 346,500.

The advance seasonally adjusted insured unemployment rate was 2.3 percent for the week ending July 13, a decrease of 0.1 percentage point from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending July 13 was 2,997,000, a decrease of 119,000 from the preceding week's revised level of 3,116,000. The 4-week moving average was 3,023,250, an increase of 2,500 from the preceding week's revised average of 3,020,750.