Recap of Yesterday

  • Choppy rates  session. FN 4.5 trades in 19 tick range...forcing us to issue two ALERTS.  Mortgage Rates still holding at or below 5.00% (well qualified borrowers only)
  • FN 4.5 +0-03 at 3pm marks. FN 4.5 -0-02 at 5pm. Current Coupon 4.39% at 3pm, 4.41% at 5pm. Yield spreads tighter vs. 5/10s Blend.
  • Fed eats up $2bn in originator supply with 2x the support. Mostly 5.0s according to traders . Day trading accounts move up in coupon.
  • In strong trading volume 2s approach 1.00% after hitting intraday low of 0.89%. 10s rise only 2bps to 3.45. 2s/10s flatter at 248bps.
  • 2s/10s flatter led by weakness in short end of yield curve after think tank report implies two Fed officials favored rate hike at next week's FOMC meeting (conclusion was that Fed would prefer to use bully pulpit calm inflationary fears). Normal reaction for curve to flatten when market speculates a rate hike
  • Fed TSY Purchase Program Update: NY Fed buys $1.799bn vs. $16.39bn submitted in the Aug 2010 to Apr 20111 sector.  $667mn in the 0.875% of Feb 2011.
  • S&P hits another 2009 high after inflation data provides reason to believe that deflationary spiral has been avoided, following CPI release...better than expected industrial output adds optimistic momentum to intraday rally. 
  • Stocks higher 8 out of last 9 sessions. S&P close at 1068, Dow at 9791, NASDAQ at 2133.
  • Dollar weakness near YoY low. Gold hits 11 month high. Oil more expensive  after EIA US Weekly Crude Stocks read  -4.7mn bbls vs. expected -2.4mln bbls and Gasoline Stocks +500k bbls vs. expected +600k bbls
  • Fannie Mae hires new EVP of Credit Portfolio Management

Overnight

  • Global equity markets improve in overnight session: SHANGHAI +2.02%, HANG SENG +1.71%, NIKKEI +1.68%, TOPIX +0.87%, KOSPI +0.72%, FTSE +0.61%, CAC +0.43%, DAX +0.45%.
  • Japanese investors bought a record amount of foreign bonds last week...$18.2 bn.  Illustrates relatively cheap financing cost (LIBOR) of US debt vs. the rest of G7. US debt more attractive = positive for TSYs
  • Bloomberg poll shows that Americans plan to cut spending. Only 8% of US adults say they plan to increase spending, almost a third say they will cut. 58% say they will stick to their budget as planned.
  • S&P futures higher overnight. 10 yr TSY futures lower in price in above average overnight volume. Yield curve a little flatter 2s/10s at 247bps...no other trade besides

830AM Data

  • August Housing Starts 598,000 annual rate vs. expectations for 598,000 vs. 589,000 in July
  • August Housing Starts +1.5% vs. -0.2% in July. -29.6% YoY
  • Building Permits 579,000 annual rate vs. expected 583,000 vs. 564,000 July
  • Housing Starts and Permits highest since November 2008
  • Northeast leads MoM Housing Starts gain at 23.8% gain, rate still slow at 78,000 units per year. South -2.4% at 279,000 units per year
  • Northeast leads MoM Permits +14.3% to annual rate of 64,000. South +7.2% at 297,000 units per year. Midwest -5.7% at 99,000 units per year. West -5.6% at 119,000 units per year
  • Jobless Claims fell to 545,000 vs. expected 555,000 vs. 557,000 read last week
  • New claims 4-week average falls to 563,000 from 571,750 prior
  • Continuing Claims rose to 6.23. Higher than expected 6.10m vs. 6.101m prior
  • Insured Unemployment Rate rose 0.1% to 4.7%

Reaction to Data

  • Stock futures lower. TSY futures higher. Cash market 10 yr note hits 3.50% before falling back to 3.47%....in futures 3.50 corresponds to 116-21 price level. This is price level where volume accumulated this morning....3.50 will serve as intraday support.

THE RANGE IS MODERATING BOND WEAKNESS...

Here is cash market yield...THE RANGE IS MODERATING BOND MARKET WEAKNESS

And here is the FN 4.5s reaction...trading in the GREEN for now. (after yesterday's chopatility, saying "for now" is necessary)

MBS, TSY, LIBOR QUOTES