MBS Pricing Snapshot

After moving well into negative territory by 10:15am (down 4 at 102-12), Fannie 3.5s are back into positive territory in the past few minutes, currently +2 at 102-17. This is still 9 ticks off the highs that prevailed during some lenders' rate sheet print times and technically still a risky area for reprices. 10yr yields were as high as 2.565 but have returned to 2.549 now--notable because it's almost perfectly in line with yesterday's post-FOMC supportive ceiling. Failure to break lower through 2.549 is anywhere from disconcerting to ominous the longer it continues to be the case (10's just ticked up to 2.552 as I type, so jury is still out on 2.549).

Technical lines in the sand are being broken and selling is begetting more selling in Treasuries at the moment. 10yr yields are quickly up to 2.562 from 2.505 before Chicago PMI data. MBS can't help but keep some measure of pace with this sort of weakness and thus we find ourselves into negative territory on the day with Fannie 3.5s down a tick at 102-15.

This alert is to add emphasis to the previous alert. Lenders who were out with rate sheets before Chi-PMI are VERY likely to be repricing negatively.

Chicago PMI came out head-scratchingly strong, and has send bond markets to their weakest levels of the day. 10's are up to 2.536 and Fannie 3.5s are 8 ticks off their highs at 102-18 presently. This is enough for negative reprices from any lenders who were out with pricing before the data.

- Chicago PMI 65.7 vs 55.0 Forecast
- New Orders 74.3 cs 58.9 previously
- Employment Index 57.7 vs 53.2 previously
- Market Reaction: Bond markets move quickly to weakest levels.

The October Chicago Business Barometer rose to 65.9 in October from 55.7 in September, led by double digit gains in New Orders, Production and Order Backlogs. October’s gain placed the Barometer at the highest level since March 2011 with companies seemingly unaffected by the government shutdown.

October’s advance in the Barometer was its biggest monthly increase in over 30 years and only the third time in the past decade the Barometer has risen for four consecutive months.

Chicago area business expanded at a surprisingly steep pace with some panelists reporting brisk activity linked to inventory replenishment, increased customer demand, success with new product lines and new distribution channels.

New Orders soared to their highest level in nine years, adding to two prior months of gains while Production expanded to its highest level since February 2011.

Stocks and bond yields moving higher in the 3 minutes before the report--usually indicates that ISM Chicago subscribers just received a Chicago PMI report that beat the consensus. We'll see shortly.

Overnight Treasury trading began slowly and uneventfully with yields holding just under yesterday's highs during Asian hours. The highlight of European hours was a 0.2% increase in Eurozone unemployment and a big miss (0.7 vs 1.1) in inflation. German Bunds moved an instant 3 bps lower and US Treasuries soaked up about a bp of incremental improvement as a result.

That got 10yr yields down to 2.51, which remained as the low end of the morning range with 2.52 on the other side into the domestic session. Fannie 3.5s started the day roughly 9 ticks higher at 102-24.

The as-expected Jobless Claims data was mildly positive for bond markets with 10yr yields making new lows at 2.502 and Fannie 3.5s moving up 2 ticks. Both moves have since been unwound, but not aggressively so, and we remain near the best levels of the morning.

The next data point of the day arrives at 9:45 with Chicago PMI, but can cause a reaction as soon as 9:42am if the numbers vary greatly from expectations (subscribers get it 3 minutes early).

- Claims 340k vs 339 forecast, last week unrevised at 350k
- Continued Claims 2.881 mln vs 2.870 mln forecast
- Market Reaction: MBS and Treasuries at best levels of the morning--not much changed after Claims data, but a few ticks improved if anything.

In the week ending October 26, the advance figure for seasonally adjusted initial claims was 340,000, a decrease of 10,000 from the previous week's unrevised figure of 350,000. The 4-week moving average was 356,250, an increase of 8,000 from the previous week's unrevised average of 348,250.

The advance seasonally adjusted insured unemployment rate was 2.2 percent for the week ending October 19, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending October 19 was 2,881,000, an increase of 31,000 from the preceding week's revised level of 2,850,000. The 4-week moving average was 2,878,750, a decrease of 10,000 from the preceding week's revised average of 2,888,750.