MBS MORNING: Existing Home Sales Falls Short Of Expectations

By: Matthew Graham •

AT A GLANCE

  • MBS up 4 ticks on the day at 101-03  (tough resistance at 101-04)
  • 10yr Tsy up a tick with mid to high 3.62 yield (tough resistance at 3.62)
  • Existing Home Sales at 5.05 mln vs. consensus of 5.5 mln
  • Chicago PMI at 62.6 vs 60.0 consensus, highest since April 2005, but internals mixed
  • Consumer Sentiment Slight Miss at 73.6 vs 74.0, inflation expectation slightly lower, other internals slightly weaker, all bond friendly
  • resistance levels in MBS and Tsy's will be tough to break, but S&P at 1106 could cap stocks as well, allowing bonds to maintain support

 

With the next raft of data out, the outlook in the benchmark 10yr note remains exceedingly narrow and without a whiff of volatility as it bounces in the days main range roughly between 3.62 and 3.63.  Decisive moves out of that range in either direction would be cause to add or remove a sense of "lock urgency" accordingly.  MBS have a minor downtrend this AM that is competing against the broader trend from yesterday that maintains validity this AM.  Broader trends usually win these fights and given the exceedingly narrow and stable path being cut by tsy's, chances are good that we can indeed break that upper red line in the following chart:

Truth be told, the day is pretty much over in the sense that the data has come and gone, and most of the volume that will take place today, likely already has.  And that volume pinned the benchmark in a ridiculously narrow range for a moderate data morning between 3.62 and 3.63.   To me, this amounts to a message from the market that, at least for right now, it is very much where it wants to be, and it will take a lot more than the data we saw this AM to decisively change that.

But "a lot more" can occur not only in terms of data, but also in terms of TIME and FLOWS.  So don't plan on some mystical week ahead where bonds don't move at all...  Markets will certainly find their cue, and unless that is a very bond-friendly cue, the more likely direction is back UP IN YIELD.  As such, today is very much about taking advantage of the stability and excellent price levels to cash in on either good morning rates or to bide your time for potential reprices for the better before  locking in these gains at what will likely be some of the best rates we've seen in a while. 

Stay tuned here to find out if we move much out of these AM ranges, and then later in the day for discussion that may help you refine your own opinions on the extent to which you want to roll the dice over the weekend, or take deals off the table now with known profits.  Just because it's more likely that yields back up in the near future, it remains DEPENDENT on ongoing average to weak econ data and a complete absence of the notion that the Fed is going to hike sooner than expected or otherwise stem the tides of QE in any manner other than that which is already known and scheduled.

For your edification and conversations with realtors, etc...  here is a more detailed breakdown on Existing Home Sales:

  • 5.05 MLN UNIT ANNUAL RATE (CONS 5.50 MLN) VS DEC 5.44 MLN (PRV 5.45)
  • -7.2 PCT (CONS +1.0 PCT) VS DEC -16.2 PCT (PREV -16.7 PCT)
  • JAN INVENTORY OF HOMES FOR SALE -0.5 PCT TO 3.265 MLN UNITS, 7.8 MONTHS' SUPPLY
  • JAN NATIONAL MEDIAN PRICE FOR EXISTING HOMES $164,700, UNCHANGED FROM JAN'09

 

So far so good...