MBS Pricing Snapshot

As of now, it looks like bond markets are willing and able to digest a bit of weakness that began at 10:20am. It's not clear whether bond markets are responding to progressive upticks in stocks or if the weakness is owing in some way to the Fed's scheduled Twist buying. It could be as simple as a large block trade in Treasury futures going through around that time.

Causality it less important than the price action and it's effects on MBS. To that end, Fannie 3.0s are 4 ticks lower than they were at rate sheet time, and thus indicating a slight increase in negative reprice risk. It's a bit too early for most lenders, but some may be considering a negative reprice this soon in the day IF they released rate sheets before 10:15am.

Fannie 3.0s are up 1 tick at 104-31+ at the moment, despite 10yr yields trading in slightly weaker territory vs yesterday. Bond markets kicked off the overnight session in marginally stronger territory as Asian markets gave some credence to a Moody's downgrade of France. But the downgrade trade was faded at the onset of the European session, helped along by a strong short term debt auction in Spain (where we're told that rain falls mainly on the plain).

The European hours saw US 10yr yields drift from the mid 1.60's to 1.635 at 7am. Stock futures were mostly in lock-step overnight, suggesting a broad "risk-on" movement, but one that has thus far been clearly limited by yesterday afternoon's highs, at least as far as S&P futures are concerned. We're reluctant to read much at all into these generally lower volume "holiday week" hours and advocate the same.

That said, tomorrow could be a busier day and we can't completely ignore the fact that broader bond markets are giving the impression--at least from a technical perspective (sans volume)--that they're in the process of bouncing into weaker territory. This may or may not prove to be a concern by tomorrow afternoon as we could just as easily be leveling off in a sideways range between 1.65 and 1.55 in 10yr yields / 104-20 to 105-08 in Fannie 3.0 MBS.

The small amount of weakness in Treasuries so far this morning is very much a product of the overnight session as we've been trading fairly well despite stronger-than-expected Housing Starts data. Stock futures and TSY yields were already on the rise coming off a minor technical bounce ahead of the 8am hour.

There are no additional significant economic reports set for today, though Bernanke will speak in the afternoon and the Fed is in at 10:15-11:00am with a scheduled round of "Twist" buying. Here at 9:30am, the first move for cash equities markets has been down nearly 3 points in S&Ps which has helped TSYs hold their ground and MBS to continue flirting with the green.

- Starts +3.6 pct to 894k vs 840k consensus
- Permits -2.7 pct to 866k vs 865k consensus
- Multifamily Starts +11.9 pct, SFRs down 0.2 pct
- Commerce Dept says Sandy impact "minimal"

BUILDING PERMITS
Privately-owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 866,000. This is 2.7 percent (±0.8%) below the revised September rate of 890,000, but is 29.8 percent (±1.8%) above the October 2011 estimate of 667,000. Single-family authorizations in October were at a rate of 562,000; this is 2.2 percent (±0.8%) above the revised September figure of 550,000. Authorizations of units in buildings with five units or more were at a rate of 280,000 in October.

HOUSING STARTS
Privately-owned housing starts in October were at a seasonally adjusted annual rate of 894,000. This is 3.6 percent (±13.1%)* above the revised September estimate of 863,000 and is 41.9 percent (±15.9%) above the October 2011 rate of 630,000. Single-family housing starts in October were at a rate of 594,000; this is 0.2 percent (±10.3%)* below the revised September figure of 595,000. The October rate for units in buildings with five units or more was 285,000.

HOUSING COMPLETIONS
Privately-owned housing completions in October were at a seasonally adjusted annual rate of 772,000. This is 14.5 percent (±15.6%)* above the revised September estimate of 674,000 and is 33.6 percent (±17.3%) above the October 2011 rate of 578,000. Single-family housing completions in October were at a rate of 542,000; this is 3.4 percent (±11.9%)* above the revised September rate of 524,000. The October rate for units in buildings with five units or more was 226,000.