MBS Pricing Snapshot

The U.S. Census Bureau announced today that the combined value of distributive trade sales and manufacturers’ shipments for July, adjusted for seasonal and trading-day differences but not for price changes, was estimated at $1,240.6 billion, up 0.9 percent (±0.1%) from June 2012 and up 2.8 percent (±0.3%) from July 2011.

Manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,592.0 billion, up 0.8 percent (±0.1%) from June 2012 and up 5.4 percent (±0.3%) from July 2011.

The total business inventories/sales ratio based on seasonally adjusted data at the end of July was 1.28. The July 2011 ratio was 1.25.

(Reuters) - The Federal Reserve is not anxious to remove policy accommodation at the first sign of positive news on U.S. economic growth, an influential Fed official said on Monday.

Doubling down on the central bank's big monetary easing move last month, New York Fed President William Dudley said the policy stance would "evolve" only once "we became confident that the recovery was securely established."

"If we were to see some good news on growth I would not expect us to respond in a hasty manner," said Dudley, a permanent voter on the Fed's policy-setting committee and a close ally of Fed Chairman Ben Bernanke.

Greece has been in ongoing talks with the Troika on a set of austerity measures required to obtain it's next aid tranche. Reuters reports :

"The talks have dragged on longer than expected, and Athens says it will run out of money by the end of November without the 31.5 billion euro ($40.85 billion) tranche. In an interview with the Sunday edition of the Greek daily Kathimerini, Samaras said he expected a deal in time for the EU summit."

The EU Summit to which Samaras refers is set for this Thursday and speculation has been mixed, but so far, no major bombshells for the Greek Prime Minister's claims, until now.

MNI reports just now that Greece's Finance Minister is not only saying that an austerity agreement isn't likely to be in time for this Thursday's summit and that he expects an emergency Eurogroup meeting on Greece by the end of the month.

Bond markets were initially weaker on the strong Retail Sales data and this Greece news may be helping the current bounce back which has taken MBS into the green. Fannie 3.0s are up 1 tick at 105-09 thought 10yr Yields are still slightly weaker than Friday at 1.663.

The overnight session got Monday off to a slow start with Asian with US Treasury trading dead flat during Asian hours and dead flat again during European hours after adjusting slightly higher in yield.

In terms of volume, that slowness has changed a bit in the first part of the domestic session. After MBS and Treasuries both opened in slightly weaker territory, a better-than-expected Retail Sales report prompted some selling pressure on both sides of the market. This took Fannie 3.0 MBS down to 105-02, but they've since bounced to 105-07, down only 1 tick on the day.

10yr yields were as high as 1.689 but are now back down to 1.675. The other report out at 8:30am was weaker than expected with New York Fed's Empire State Manufacturing Index's Employment component slipping to its worst levels since November 2011.

A less consequential report on Business Inventories rounds out the morning economic data domestically, but we're still tuned in to Euro zone headlines after a rather active weekend. Highlights include Sweden's Finance Minister saying Greece will likely be out of the Euro zone within six months followed by German Finmin Schaeuble refuting that claim. Reuters cites "senior sources" as saying Spain is likely to finally request a bailout in November. The somewhat perplexing delay is said to be due to the fact that Germany would rather have one painstaking debate over these aid packages as opposed to three successive debates.

- Current Conditions -6.16 vs -4.55 Consensus
- Employment -1.08 vs 4.26 previously
- Employment lowest since Nov 2011

The October Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to decline for a third consecutive month. The general business conditions index increased four points but remained negative at -6.2. The new orders index rose fi ve points to -9.0, while the shipments index fell nine points to -6.4, its fi rst negative reading in more than a year. The prices paid index was little changed at 17.2, and the prices received index held steady at 4.3. Employment conditions weakened, with the index for number of employees declining fi ve points to -1.1 and the average workweek index falling three points to -4.3. Indexes for the six-month outlook suggested that conditions were expected to improve, although the level of optimism among manufacturers remained low relative to earlier this year.

The indexes for both prices paid and prices received were little changed. At 17.2, the prices paid index remained near its level of the past few months, suggesting that moderate input prices increases were continuing. The prices received index held at 4.3, indicating a small increase in selling prices. The indexfor number of employees fell for a second consecutive month and, at -1.1, suggested that employment levels were essentially fl at. Prior to September, this index had shown modest increases in employment throughout much of the year. The average workweek index fell three points to -4.3, signaling a shorter workweek.

- Sales +1.1 vs +0.8 Consensus
- Excluding Autos +1.1 vs +0.6 Consensus
- Excluding Gasoline +1.0, Biggest Rise Since Oct 2011

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for September, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $412.9 billion, an increase of 1.1 percent (±0.5%) from the previous month and 5.4 percent (±0.7%) above September 2011. Total sales for the July through September 2012 period were up 4.8 percent (±0.5%) from the same period a year ago. The July to August 2012 percent change was revised from 0.9 percent (±0.5%) to 1.2 percent (±0.3%).

Retail trade sales were up 1.2 percent (±0.5%) from August 2012 and 5.3 percent (±0.7%) above last year. Nonstore retailers sales were up 15.0 percent (±3.1%) from September 2011 and auto and other motor vehicle dealers were up 9.3 percent (±2.5%) from last year.