MBS Pricing Snapshot

- Index +0.3 vs +2.1 consensus

The Pending Home Sales Index, a forward-looking indicator based on contract signings, edged up 0.3 percent to 99.5 in September from 99.2 in August and is 14.5 percent above September 2011 when it was 86.9. The data reflect contracts but not closings.

Lawrence Yun , NAR chief economist, said pending home sales continue to hold a higher ground. "Home contract activity remains at an elevated level in contrast with recent years, but currently appears to be bouncing around in a narrow range," Yun said. "This means only minor movement is likely in near-term existing-home sales, but with positive underlying market fundamentals they should continue on an uptrend in 2013."

Pending home sales have risen for 17 consecutive months on a year-over-year basis, leading to the solid recovery seen in closed existing-home sales this year. In September all regions were showing double-digit increases in contract activity from a year ago with the exception of the West, which is constrained by limited inventory.

Overnight and early domestic action pretty much seals the analytical deal for us. We're in the midst of broad cycle of "risk-on" vs "risk-off" trading where stocks and bonds at home and abroad are generally moving in the same direction (bond yields and stock prices) even if at varying magnitudes of correlation.

Case in point, the overnight session offered very little by way of organic market moving data yet has sparked the biggest overnight sell-off of the week. Coincidental then that stocks just put in a firm double bounce and had their best overnight session of the week? We don't think it is, and we don't think bond markets are stupid.

Bond markets don't have much to go on right now and as a result, have been paying more attention than normal to equities markets and other spokesmen for the risk trade. Overnight action was inexplicably ugly with all the hallmarks of a capitulative snowball selling spree.Volume was big but so far a series of lower highs beginning at 1.854 at 4:38am have helped introduce the possibility that we attempt to hold ground supportively into the domestic session.

With that in mind Treasuries and MBS traded calmly through the morning data, despite as-expected Jobless Claims and Stronger than expected Durables. This disregard for data is another clue that trading levels are more a product of "flows" (smaller trades following medium trades following bigger trades creating a "herd" effect), technicals, and guarding against a broader "risk-on!" shift.

Fannie 3.0s are down 10 ticks at the moment at 104-06 and 10yr yields are up almost 5 bps at 1.8436. S&P futures are up just over 10 points from yesterday's 5pm mark.

- Durables Orders +9.9 vs +7.1 Consensus
- Largest Increase Since Jan 2010
- Keep last month's huge drop in mind, however. When we look at outright levels, total Durables orders were $228 bln in July, $198 bln in August and in today's September numbers, back up to $218 bln

New orders for manufactured durable goods in September increased $19.6 billion or 9.9 percent to $218.2 billion, the U.S. Census Bureau announced today. This increase, up four of the last five months, followed a 13.1 percent August decrease. Excluding transportation, new orders increased 2.0 percent. Excluding defense, new orders increased 9.1 percent.
Transportation equipment, up five of the last six months, had the largest increase, $16.8 billion or 31.7 percent to $69.6 billion.

In the week ending October 20, the advance figure for seasonally adjusted initial claims was 369,000, a decrease of 23,000 from the previous week's revised figure of 392,000. The 4-week moving average was 368,000, an increase of 1,500 from the previous week's revised average of 366,500.

The advance seasonally adjusted insured unemployment rate was 2.5 percent for the week ending October 13, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending October 13 was 3,254,000, a decrease of 2,000 from the preceding week's revised level of 3,256,000. The 4-week moving average was 3,269,750, a decrease of 6,750 from the preceding week's revised average of 3,276,500.