MBS Pricing Snapshot

Big "risk-on" swing relative to the day's previous volume. Candidates for causality include a double bottom in German Bund yields as a positive trend (mentioned this morning re: Elliott Wave) matured. Bunds hit 1.516 two noticeable times and are now up to 1.536. Domestic Treasuries have followed the bounce, moving up from 1.79 to 1.81 and Fannie 3.0s have sold off rather abruptly from 102-13 to 102-06 currently.

All of the above coincides with a bounce higher in stocks and a failure to break convincingly through the 1.80 pivot in 10yr yields. Please note the continued dominance of TECHNICALS and TRADEFLOWS.... In other words, we had a markedly WEAKER Philly Fed survey with an extra weak employment component. Markets didn't care. Can't rationalize the moves, can only observe and react.

Speaking of reacting, negative reprices are a risk now, considering how MBS hit their highs just during rate sheet time and are now back to their lows of the morning. The 'bond rally nazi" is alive and well (for now): "No Rally For You!" Man... we hate that guy, but he doesn't seem to want to go away this week.

* Business Conditions -7.1 vs -5.0 consensus
* New Orders -5.5 vs July -6.9
* Employment -8.6 vs July 8.4
* Employment lowest since Sept 2009

Manufacturing firms responding to the Business Outlook Survey continued to report weakness in overall business conditions in August. The survey’s diffusion index of current activity increased to -7.1 from a reading of -12.9 in July, marking the fourth consecutive negative reading for the index but also its highest reading since May.

The index for new orders also improved from July but remained negative this month. Firms reported declines in shipments and fewer hours worked this month. The survey’s indicators of activity over the next six months remained positive but moderated for the second consecutive month.
In the special questions this month, firms were asked about the importance of seasonal factors to monthly production levels. They were also asked about scheduled shutdowns and production slowdowns during the summer months.

-30-year fixed-rate mortgage (FRM) averaged 3.62 percent with an average 0.6 point for the week ending August 16, 2012, up from last week when it averaged 3.59 percent. Last year at this time, the 30-year FRM averaged 4.15 percent.

-15-year FRM this week averaged 2.88 percent with an average 0.6 point, up from last week when it averaged 2.84 percent. A year ago at this time, the 15-year FRM averaged 3.36 percent.

-5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.76 percent this week with an average 0.6 point, down from last week when it averaged 2.77 percent. A year ago, the 5-year ARM averaged 3.08 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 2.65 percent. At this time last year, the 1-year ARM averaged 2.86 percent.

The overnight session saw better-than-average volume, which, considering the time of year, was actually quite high. Asia aggressively sold bonds at the open, but 10yr yields bounced in the wee hours before hitting 1.86%. That technical bounce trumped better-than-expected UK Retail Sales and ushered US 10yr yields into the New York session just slightly better than unchanged.

The morning data (weaker claims, but basically on-the screws, weaker housing starts, stronger building permits) is best seen as simply "not standing in the way of the technical correction.

That correction began with the German Bond market open and German Bunds traded in miniature Elliott Wave that's maturing presently. Incidentally, it's doing do right at yesterday's important pivot for Bunds at 1.52. This translates to the 1.80 pivot in US 10's.

MBS similarly opened slightly stronger and have ratcheted incrementally higher as the morning progresses. Fannie 3.0's are up 8 ticks at 102-10 and Fannie 3.5's are up 6 ticks at 104-24.

* Housing Starts - 1.1 percent vs +6.8 percent in June * Housing Starts 746k annual rate vs 757k consensus
* Permits +6.8 percent vs -3.1 percent June
* Permits 812k vs 770k consensus
* Multi-Family starts up 12.4 percent, SFRs -6.5 percent
* SFR permits highest since March 2010

The U.S. Census Bureau and the Department of Housing and Urban Development jointly announced the following new residential construction statistics for July 2012:

BUILDING PERMITS
Privately-owned housing units authorized by building permits in July were at a seasonally adjusted annual rate of 812,000. This is 6.8 percent (±1.5%) above the revised June rate of 760,000 and is 29.5 percent (±1.6%) above the July 2011 estimate of 627,000. Single-family authorizations in July were at a rate of 513,000; this is 4.5 percent (±0.8%) above the revised June figure of 491,000. Authorizations of units in buildings with five units or more were at a rate of 274,000 in July.

HOUSING STARTS
Privately-owned housing starts in July were at a seasonally adjusted annual rate of 746,000. This is 1.1 percent (±9.6%)* below the revised June estimate of 754,000, but is 21.5 percent (±14.2%) above the July 2011 rate of 614,000. Single-family housing starts in July were at a rate of 502,000; this is 6.5 percent (±8.7%)* below the revised June figure of 537,000. The July rate for units in buildings with five units or more was 229,000.

* Claims 366k vs 365k Consensus, 364k Previous
* Continued Claims 3.305 mln vs 3.300 mln

In the week ending August 11, the advance figure for seasonally adjusted initial claims was 366,000, an increase of 2,000 from the previous week's revised figure of 364,000. The 4-week moving average was 363,750, a decrease of 5,500 from the previous week's revised average of 369,250.

The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending August 4, unchanged from the prior week's unrevised rate.

The advance number for seasonally adjusted insured unemployment during the week ending August 4, was 3,305,000, a decrease of 31,000 from the preceding week's revised level of 3,336,000. The 4-week moving average was 3,303,000, a decrease of 3,000 from the preceding week's revised average of 3,306,000.