MBS Pricing Snapshot

With only a few minutes having passed since the ISM Non-Manufacturing report, it's too soon to assume negative reprice risk for the few lenders who could be affected by it, but we're heading in that direction. 10yr yields are up to 2.65, Fannie 4.0s are down 4 ticks to 103-27, and Fannie 3.5s are down 9 ticks to 100-22. These moves lower in MBS from the pre-data levels are just on the edge of suggesting negative reprice risk for lenders who were already out with pricing. There's no convicted move straight through to lower levels and both active MBS coupons are holing near their lows of the day (or slightly better) for now.

- ISM Non-Manufacturing PMI 56.0 vs 53.0 forecast
- Prices Paid 60.1 vs 52.5 previously
- Business Activity 60.4 vs 53.3 forecast
- New orders 57.7 vs 50.8 forecast
- Employment 53.2 vs 54.7 in June

- Market Reaction: Treasuries move higher in yield to 2.644 currently. MBS would like to follow the sell-off but are too illiquid to do so just yet (though it's probably coming).

In July, the NMI™ registered 56 percent, indicating continued growth in the non-manufacturing sector for the 43rd consecutive month. A reading above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent indicates the non-manufacturing sector is generally contracting.

ISM's Non-Manufacturing Business Activity Index in July registered 60.4 percent, 8.7 percentage points higher than the 51.7 percent registered in June. This month's reading reflects the highest reading for the index since December 2012, when the index registered 60.8 percent. Twelve industries reported increased business activity, and four industries reported decreased activity for the month of July. Comments from respondents include: "Large projects starting" and "Volumes are slightly higher, mostly due to housing."

Employment activity in the non-manufacturing sector grew in July for the 12th consecutive month. ISM's Non-Manufacturing Employment Index registered 53.2 percent, which reflects a decrease of 1.5 percentage points when compared to the 54.7 percent registered in June. Twelve industries reported increased employment, and four industries reported decreased employment. Comments from respondents include: "Employment ramp up" and "Adding staff in anticipation of new store openings."

The overnight session was exceptionally quiet for Treasuries with 10's trading a narrow 2.62-2.60 range. European data provided a few gentle cues with the most recent (5am) Eurozone Retail Sales coming in at -0.5 vs -0.6 forecasts. That's not quite enough of a beat to blame for the moderate weakness we've seen since then, but we've seen it just the same.

10's have risen to 2.63 through the first hour of domestic trading though MBS are faring a bit better, down only 2 ticks in Fannie 4.0s to 103-29. Fannie 3.5s are down 6 ticks at 100-25--still outperforming Treasuries just slightly.

There's only one piece of significant data today (also the most significant of the week) at 10am this morning with ISM Non-Manufacturing. The consensus is for a PMI reading of 53.0 vs 52.2 previously.