MBS Pricing Snapshot

- NAHB Index 58 vs 55 forecast
- Single Fam Sales Index 64 vs 58 previously
- Single Fam Index highest since Dec 2005
- Market Reaction: Almost none... Maybe 1/32nd weaker in MBS but Treasuries have been holding the same flat range since 9:40am.

Builder confidence in the market for newly built, single-family homes improved four points to a 58 reading on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for December, released today. This gain reflected improvement in all three index components – current sales conditions, sales expectations and traffic of prospective buyers.

“This is definitely an encouraging sign as we move into 2014,” said National Association of Home Builders (NAHB) Chairman Rick Judson, a home builder from Charlotte, N.C. “The HMI is up 11 points since December of 2012 and has been above 50 for the past seven months. This indicates that an increasing number of builders have a positive view on where the industry is going.”

“The recent spike in mortgage interest rates has not deterred consumers as rates are still near historically low levels,” said NAHB Chief Economist David Crowe. “Following a two-month pause in the index, this uptick is due in part to release of the pent-up demand caused by the uncertainty generated by the October government shutdown. We continue to look for a gradual improvement in the housing recovery in the year ahead.”

Derived from a monthly survey that NAHB has been conducting for 25 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

Treasuries drifted into moderately stronger territory during Asian market hours, but any movement was just an incidental byproduct of an incredibly small amount of trading. In other words, if wouldn't take much to move markets in this super low volume environment.

Treasuries stayed flat during European hours despite a stronger-than-expected ZEW Sentiment Survey in Germany (an important economic report for European bond markets).

The onset of domestic trading activity made for more movement, but "more" is a relative term in this case as 10yr yields continue trading a range of less than 2bps. Fannie 4.0s opened roughly in line with yesterday's latest levels and improved after the 830am data, even if not because of it.

MBS are holding 4 tick (4/32nd or .125) gains so far despite unchanged levels in Treasuries. The next data of the morning hits at 10am with the NAHB Housing Market Index.

- CPI +0.034 vs +0.100 Forecast
- Core CPI +0.1545 vs +0.1000 Forecast
- Annual Core CPI +1.7 vs +1.7 Forecast
- Market Reaction: There was a bit of a gyration in Treasuries and MBS, but trading levels are already back in line with pre-data levels.

The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in November on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.2 percent before seasonal adjustment.

The energy index declined in November, offsetting increases in other indexes to result in the seasonally adjusted all items index being unchanged. The indexes for gasoline and for natural gas fell significantly, more than offsetting increases in the electricity and fuel oil indexes. The food index rose slightly in November, with the food at home index unchanged.

The index for all items less food and energy rose 0.2 percent in November. Increases in the indexes for shelter and airline fares accounted for most of the increase, with the indexes for recreation and for used cars and trucks also rising. The indexes for apparel, for household furnishings and operations, and for new vehicles all declined in November.