MBS MID-DAY: Reprices for Better Possible

Stocks have fallen to new lows and MBS prices have moved to new intraday highs as a result. Gauging reprice potential is a tough job at the moment. Several of the major lenders have already released rate sheets. Rebate improvements are noted but do not match current MBS levels. That makes reprices for the better a possibility. If it were our decision we'd wait and see if the bond market settles at current levels (FNCL 4.5s at 101-22) before repricing for the better.

RTRS-WHITE HOUSE'S GOOLSBEE SAYS FEB JOBS REPORT REFLECTS SUCCESS OF OBAMA POLICIES IN CREATING CONDITIONS FOR GROWTH, JOB CREATION. FEB JOBS REPORT ENCOURAGING BUT STILL CONSIDERABLE WORK TO BE DONE TO REPLACE LOST JOBS

Plain and Simple: When viewed on the spot, this was a strong monthly jobs report. The headline NFP print was close to consensus. The unemployment rate fell without a decline in the labor force participation rate. Manufacturing conditions continue to improve as emerging economies use our resources to build their own. Educated/High-skilled workers are finding demand for their services. The healthcare industry has created an average of 22,000 jobs a month since last February. The construction industry contributed 33,000 jobs, but most folks will question whether or not the uptick was a weather related correction. The bad news is we'll need to see an average of at least 200,000 jobs created every month to meet the Fed's 2011 growth targets. Since last February, payroll employment has increased by 1.3 million, or an average of 106,000 per month. Revisions added 27,000 jobs to the January report, which brings the 2011 average to 127,500 so far. That means job creation still isn't meeting the Fed's targets. A point we've been making repeatedly is a lack of wage growth. Over the past 12 months, average hourly earnings have risen by 1.7 percent. Compare that to a 1.7 percent rise in CPI and you've got zero real wage growth. Rising energy and food prices are squeezing Main Street's profit margins.

*** PARIS-FED'S YELLEN - COUNTRIES FACE DIFFERING CHALLENGES IN RECOVERY, COOPERATIVE SPIRIT ESSENTIAL *** YELLEN - NEED TO STRENGTHEN INTERNATIONAL MONETARY SYSTEM *** YELLEN-NEED TO CONTINUE TO WORK TOWARD VIABLE RESOLUTION MECHANISMS FOR SYSTEMICALLY RISKY FIRMS *** YELLEN-COUNTRIES MUST WORK TOGETHER TO ADDRESS FLAWS IN FINANCIAL REGULATION *** YELLEN - NEED A SYSTEM CHARACTERIZED BY MORE FLEXIBLE EXCHANGE RATES, INDEPENDENT POLICIES *** YELLEN - SUCH A SYSTEM WOULD HELP COUNTRIES FLEXIBLY ADAPT WHEN SHOCKS BUFFET GLOBAL ECONOMY *** YELLEN - COUNTRIES WITH CURRENT ACCOUNT DEFICITS NEED CREDIBLE PLANS TO REDUCE FISCAL DEFICITS IN LONG RUN *** YELLEN - EXPANSION OF PUBLIC SECTOR DEFICITS, DEBTS POSE VERY SERIOUS MEDIUM TO LONG-RUN RISKS

*** FACTORY ORDERS +3.1 PCT (CONSENSUS +2.0 PCT) VS DEC +1.4 PCT (PREV +0.2 PCT) *** DURABLES ORDERS REVISED TO +3.2 PCT FROM +2.7 PCT *** NONDEFENSE CAP ORDERS EX-AIRCRAFT REVISED TO -6.2 PCT FROM -6.9 PCT *** FACTORY ORDERS EX-TRANSPORTATION +0.7 PCT VS DEC +3.0 PCT (PREV +1.7 PCT) *** FACTORY ORDERS EX-DEFENSE +2.8 PCT VS DEC +1.5 PCT *** NONDURABLES ORDERS +3.1 PCT VS DEC +3.1 PCT *** COMPUTERS/ELECTRONIC PRODUCTS ORDERS -5.9 VS DEC +0.1 PCT *** TOTAL MANUFACTURING INVENTORIES +1.3 PCT VS DEC +1.4 PCT *** INVENTORIES/SHIPMENTS RATIO 1.25 MONTHS' WORTH VS DEC 1.26 MONTHS *** OVERALL FACTORY ORDERS RISE LARGEST SINCE +3.2 PCT IN SEPT 2006

Slightly positive tones are generally prevailing in bonds so far today. 10yr notes rallied at their best pace of the morning after stocks opened slightly weaker. They're currently at 3.535. FNCL 4.5's are up 10 ticks on the day now at 101-18. There's still 10am data left to come as well as potential stock-lever connection after that. It's "so far so good" for now, and although we're closer than we were before, still too soon to assume current gains remain intact.

The absence of significantly better-than-expected results from this morning's employment report sparked a flurry of short covering in the short end of the yield curve, producing the day over day gains seen in 2's through 7's, and leaving 10's and 30's slightly negative on the day. This steepens the yield curve to 281.7 bps. The curve is getting near a technical level near it's recent highs of 284 bps. A falling yield curve in the current environment would likely be supportive for MBS. So seeing resistance keep things at 284bps or less would be good. Speaking of MBS, they're currently up 7 ticks on the day at 101-15, but volatility remains a factor and despite more promising signs, it's still too soon to bet on gains being intact by the end of the day.

*** AVERAGE WORKWK ALL PRIVATE WORKERS 34.2 HRS (CONS 34.3 PCT) VS JAN 34.2 HRS (PREV 34.2), FACTORY 40.5 VS 40.4, OVERTIME 3.3 VS 3.1 *** AGGREGATE WEEKLY HOURS INDEX FOR ALL PRIVATE WORKERS +0.2 PCT VS JAN UNCH

*** AVERAGE HOURLY EARNINGS ALL PRIVATE WORKERS 0.0 PCT (CONS +0.2 PCT) VS JAN +0.4 PCT (PREV +0.4), TO $22.87 VS JAN $22.86; FEB YEAR-ON-YEAR EARNINGS +1.7 PCT

*** JOBLESS RATE 8.9 PCT (CONSENSUS 9.1 PCT) VS JAN 9.0 PCT (PREV 9.0 PCT) *** *** JOBLESS RATE LOWEST SINCE MATCHING 8.9 PCT IN APRIL 2009

In the first few minutes since the release of the Employment situation report which showed 192k increase in Non-Farm Payrolls, the bond markets have rallied to slightly better levels than yesterday afternoon. 10yr notes are at 3.546 and FNCL 4.5's are up 5 ticks on the day currently at 101-13. It's still too early to say definitively if it will be a green day for bonds, but the first reaction is a positive one.

*** NONFARM PAYROLLS +192,000 (CONSENSUS +185,000) VS JAN +63,000 (PREV +36,000), DEC +152,000 (PREV +121,000) *** SECTOR JOBS +222,000 (CONS +190,000), JAN +68,000 (PREV +50,000) *** GOVERNMENT JOBS -30,000 VS JAN -5,000 (PREV -14,000) *** FACTORY JOBS +33,000 (CONS. +25,000) VS JAN +53,000 (PREV +49,000) *** GOODS-PRODUCING JOBS +70,000, CONSTRUCTION +33,000, PRIVATE SERVICE-PROVIDING JOBS +152,000, RETAIL -8,000 *** NONFARM PAYROLLS INCREASE LARGEST SINCE MAY 2010 (+458,000)

Interest rates moved mostly sideways in light overnight trading volumes. The same thing goes for stocks, totally sideways in a quiet marketplace. Unfortunately sideways overnight price action in benchmark Treasuries followed an abrupt spike in rates yesterday that carried the 10-year note outside its recently tight trading range, back into the middle of the broader month long range at 3.57%. Short selling was obvious in the futures market, we'd like to see those positions squeezed out today to confirm the recovery rally that has played out over the past three weeks. Of course, given the ledge we're on technically, the potential also exists for snowball selling. If you floated into today we hope you're aware what's at risk...another jump in Best Execution C30 mortgage rates. A move from 5.00% to 5.25% is possible if the market gets going in one direction without push back. The short base that was built-in yesterday would lead that directional jump. As mentioned above, that short base is also highly susceptible to being squeezed out if the data disappoints. That would be a positive for mortgage rate watchers.