MBS AFTERNOON: Consumer Credit Declines for Ninth Straight Month, BUT....

Heading towards 5pm "going out"  marks, the 10yr TSY note is +0-13 at 99-17 yielding 3.429% and the FN 4.0 is +0-11 at 99-04 yielding 4.093% while the FN 4.5 is +0-12 at 101-29 yielding 4.282%. All three are testing NY session price highs...

REPRICES FOR THE BETTER HAVE BEEN REPORTED

The secondary market current coupon is 4.188%. The CC  yield is +75bps/10yr TSY yield and +61/10yr swap rate. Up in coupon was the obvious MBS winner on the day..thanks to slower than expected prepay speeds (STILL). Supply was less than average at about $2.5bn...which a hoard of hungry buyers easily ate up. Dealer color suggests a 5:1 buyer/seller ratio. Dealers are still short bonds to deliver. Shake the bushes originators!

Here is a zoomed out view of the FN 4.5 ....

The yield curve is much STEEPER today. This is a function of Friday's post-NFP "positive outlook" sell off and Bernanke, today, re-iterating the rates plicy time frame  "extended period" in his comments at the Economic Club of DC. More or less here is a quick recap of his sentiment: We have some way to go before can be sure the US economic recovery is self-sustaining. His best guess is will see modest growth in 2010, enough to lower jobless rate, inflation is likely to remain subdued for some time, and once again he reiterated the "on-hold" rate policy for an "extended period". All good for the short end of the yield curve.

I think the chart below adequately illustrates the extent to which the long end of the yield curve was outperformed by the short end  today. This graph charts the difference between the 2yr note yield and the 10yr note yield, a wider spread = steeper yield curve. The 2s/10s curve is up to 267bps, the yield curve's steepest level since July.  275bps is an all time high. While trading volume was definitely not indicative of any bias or trend...today's steepener creates a bargain buying opportunity in the long end of the yield curve. (Hint hint direct/indirect bidders)

The Federal Reserve released Consumer Credit data this afternoon. Looks like consumers are leaning on their credit cards again....

In October, consumers reduced outstanding debt by $3.5 billion, much less than the $9.3 billion economists had forecast. This is the ninth consecutive  month over month decline in outstanding consumer credit. BUT, yes all capital letters are needed, both August and September were revised for the worse. September's debt decline was revised from a reduction of $14.8 billion to a much smaller decline of $8.8 billion. August was revised from a reduction of $3.4 billion from a previously reported decline of $9.9 billion.

Looking closer at October, revolving credit (credit cards) fell $6.95 billion while non-revolving credit, (car, boat, education loans) outstanding rose $3.44 billion.

Overall, there is still $2,480,000,000,000 in credit outstanding. That's $2.48 trillion.

ARE YOU FINANCING YOUR HOLIDAY SHOPPING ?