MBS OPEN: Rates Back Up After Data. Range Holding

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Recap of Yesterday

  • New Home Sales Fall for First Time in Six Months READ MORE
  • Sept Durable Goods Orders +1.0% vs -2.6% revised lower August read. Right on expectations
  • 5yr TSY auction goes off well. 2.63 bid to cover, 2.388% high yield READ MORE
  • Rates extend rally. FN 4.5 breaks into 101 price handle. Lenders reprice for the better. Mortgage Rates move lower.
  • 10yr TSY note done for the day +0-10 at 101-23+ yielding 3.415%. Market traded in tight range (3.40 to 3.46) within broader range (3.27 - 3.50). READ MORE
  • MBS 5pm "going out" marks: FN 4.0 at 98-21 yielding 4.140%, FN 4.5 at 101-05 yielding 4.359%. Secondary market current coupon 4.282%.
  • "Rate sheet influential" yield spreads tightened into the benchmark rates rally thanks to limited supply and Fed, bank, and fast money buying. 5pm spread levels: MBS Current Coupon Yield +86/10yr TSY. FN 4.5 +94/10yr TSY
  • S&P closes -1.95% at 1,042....fourth consecutive day of stock losses
  • Dollar stronger vs basket of currencies. Dollar index +0.44% at 76.47.  Euro$ - 1.73% to $1.4711. 
  • Oil prices lower after gasoline inventory build up more than expected. Crude Oil -2.97% to $77.19/barrel. Gold down 1.12% to $1,027/ounce
  • FTHB Tax Credit political poo flying all over the place. Dem and Rep leaders supporting extension READ MORE. We will further discuss when the deal is done...
  • Comment from MBS Ninja: "Bad NYC sports night. Rangers looked flat. Yanks couldn't touch Lee. Knicks only touched themselves". LOL hahahaha. BTW we are hockey fans if you are wondering. C-A-P-S CAPS CAPS CAPS

Comment of the Day....in response to MBS CLOSE

This Morning So Far

  • SHANGHAI -2.34%, HANG SENG -2.28%, TOPIX -0.74%, NIKKEI -1.83%, CAC -0.31%
  • The US Dollar gave back portion of yesterday's gains overnight. Oil Prices Slightly Higher at 77.78. Gold trading $5 richer at $1032.40

830AM DATA....

JOBLESS CLAIMS: LOWER THAN LAST WEEK. WORSE THAN EXPECTED

  •  FELL TO 530,000 OCT 24 WK (CONS. 521,000) FROM 531,000 PRIOR WK (PREV 531,000)
  • 4-WK AVG FELL TO 526,250 OCT 24 WK FROM 532,250 PRIOR (PREV. 532,250)
  • CONTINUED CLAIMS FELL TO 5.797 MLN OCT 17 WK (CONS. 5.9) VS 5.945 MLN PRIOR (PREV 5.923), LOWEST SINCE MAR 21 WEEK (5.745 MLN);4-WK AVG LOWEST SINCE JAN 10 WEEK
  • INSURED UNEMPLOYMENT RATE FELL TO 4.4 PCT OCT 17 WEEK FROM 4.5 PCT PRIOR WK (PREV 4.5)
  • LOWEST SINCE MAR 21 WEEK (5.745 MLN);4-WK AVG LOWEST SINCE JAN 10 WEEK

Q3 ADVANCE GDP:  BETTER THAN EXPECTED

  • +3.5 PCT (CONSENSUS +3.3), Q2 -0.7 PCT; FINAL SALES +2.5 (CONS +2.1), Q2 +0.7
  • US ADVANCE Q3 GDP DEFLATOR +0.8 PCT (CONS +1.3) VS Q2 UNCH
  • PCE PRICE INDEX +2.8 PCT (CONS +2.4), Q2 +1.4; CORE PCE +1.4 PCT (CONS +1.4), Q2 +2.0
  • CONSUMER SPENDING +3.4 PCT (Q2 -0.9), DURABLES +22.3 PCT (Q2 -5.6 PCT)
  • MARKET-BASED PCE PRICE INDEX +2.8 PCT (Q2 +1.5), CORE +1.2 PCT (Q2 +2.3)
  • BUSINESS INVESTMENT -2.5 PCT (Q2 -9.6 PCT), EQUIPMENT/SOFTWARE +1.1 PCT (Q2 -4.9 PCT)
  • HOME INVESTMENT +23.4 PCT (Q2 -23.3 PCT),BUS. INVESTMENT IN STRUCTURES -9.0 PCT (Q2 -17.3)
  • EXPORTS +14.7 PCT (Q2 -4.1 PCT), IMPORTS +16.4 PCT (Q2 -14.7 PCT)
  • GDP EX MOTOR VEHICLES +1.9 PCT (Q2 -0.9 PCT)
  • YEAR-ON-YEAR PCE PRICE INDEX -0.6 PCT (Q2 -0.2 PCT), CORE PCE +1.3 PCT (Q2 +1.6 PCT)
  • BUSINESS INVENTORY CHANGE -$130.8 BLN (Q2 -$160.2 BLN)
  • GDP FIRST INCREASE SINCE Q2 2008; CONSUMER SPENDING INCREASE LARGEST SINCE Q1 2007
  • HOME INVESTMENT INCREASE FIRST SINCE Q4 2005; EQUIPMENT/SOFTWARE FIRST INCREASE SINCE Q4 2007
  • DURABLES SPENDING RISE LARGEST SINCE Q4 2001 (+38.1 PCT)

S&P futures hit 1,044 overnight. Weakened back to 1,040 early in NY session. After the data, stock futures moved higher but failed to break 1048.

The 10yr TSY futures contract weakened overnight and yields moved higher, however early in the NY session, rates began to improve. The bond market's  reaction to 830AM data was not originator friendly. Cash market TSY yields are higher.  The 10yr TSY note is trading -0-15 at 101-10 yielding 3.464%.

Mortgages reacted poorly too, but not as bad as TSYs. Prices have already bounced from the post data knee jerk lows. After going down 13 ticks to 98-09, the FN 4.0 is currently -0-08 at 98-14 yielding 4.162%. The FN 4.5 fell as far as 100-24 before reversing course, the FN 4.5 is currently -0-06 at 101-00 yielding 4.379%. The secondary market current coupon is 4.303%.

Rate sheet influential yield spreads have tightened as benchmark rates have backed up. The MBS Current Coupon yield is now 83 basis points over the 10yr TSY note yield and the FN 4.5 is +91/10yr TSY

The BIG PICTURE remains unclear as we remain skeptical/defensive of economic stabilization. Just to reiterate our sentiment: the labor and housing markets must show more signs of improvement before we will concede to any "green shoots" theory.  That said...short term trading strategies still dominate the market and we expect the range to continue to provide guidance. Today,while we do believe early morning selling will correct,  there is room for rates to run higher  which means we are not yet comfortable with the post-data corrective bounce seen in MBS prices. While we wait for a bounce, stay defensive, if the 10yr holds near the high side of the yield range, "rate sheet influential" MBS prices will fall.  We already advised a few pricing desks to pad rate sheets this morning, we wouldnt be surprised if that theme is consistent through all conduits. Therefore if, rates correct and MBS prices move higher, there will be room for reprices for the better.

The Day Ahead

9:30     TIIIIIMMMMAAAY Geithner testimony on financial regulation and Securitization before the House Financial Services Committee
11:00   Kansas City Fed Survey
10:15   LAST Fed Treasury coupon purchase (Dec 31, 2013 to Apr 30, 2016)
1:00     Treasury auctions $31bn 7-year notes