MBS RECAP: Back on a Ledge

(Reuters) -Credit Suisse Group AG (CSGN.VX) has agreed to pay $70 million to settle U.S. litigation accusing the Swiss bank of misleading investors about its subprime exposure and ability to limit losses. The settlement also covers several executives, including Chief Executive Brady Dougan. It allows recovery for investors who bought Credit Suisse's American depositary shares, and U.S. investors who bought Credit Suisse securities in Switzerland, between Feb. 15, 2007 and April 14, 2008, court papers show. It resolves one of many securities fraud cases against banks to arise from the 2007 and 2008 financial crises. The case had its origin in events in early 2008.

(Reuters) - U.S. household wealth rose by $2.1 trillion in the fourth quarter and household debt contracted at the slowest pace since 2008, as consumers stepped up spending and helped fuel the economic recovery. Gains made in investments such as mutual funds boosted overall household wealth to $56.8 trillion even as the value of real estate fell, data released by the Federal Reserve showed on Thursday. Non-financial businesses held $1.9 trillion in liquid assets, such as cash, in the fourth quarter. That was up from a revised $1.8 trillion in the previous quarter, the data showed. (Reporting by Mark Felsenthal and Rachelle Younglai; Editing by Andrea Ricci) RTRS-U.S. HOUSEHOLD NET WORTH RISES $2.1 TRLN TO $56.8 TRLN IN Q4 OF 2010 . RTRS-U.S. Q4 HOUSEHOLD DEBT CONTRACTS AT 0.6 PERCENT ANNUAL RATE, HAS DECLINED EVERY QUARTER SINCE FIRST QUARTER OF 2008 . RTRS-PACE OF DECLINE IN HOUSEHOLD DEBT SMALLEST SINCE Q3 OF 2008 . RTRS-U.S. FEDERAL GOVT DEBT EXPANDS AT 14.6 PCT ANNUAL RATE IN Q4, AFTER 16 PCT PACE IN PREVIOUS QUARTER . RTRS-U.S. STATE AND LOCAL GOVT DEBT EXPANDS 7.9 PCT ON ANNUAL RATE AFTER 5.4 PCT IN PREVIOUS QUARTER . RTRS-U.S. NON-FINANCIAL FIRMS HAD $1.9 TRLN IN LIQUID ASSETS IN Q4, UP FROM REVISED $1.8 TRLN IN PREVIOUS QUARTER - FED

(Reuters) - The U.S. government posted a record monthly budget deficit of $222.5 billion in February as spending growth outstripped revenue gains that were crimped by tax cuts enacted late last year, the Treasury Department reported on Thursday. The budget gap for February -- typically a large deficit month -- beat the previous record of $220.91 billion set in February 2010. But it came in under the consensus forecast of a $227.5 billion gap from analysts polled by Reuters. The Treasury said the cumulative deficit through the first five months of fiscal 2011 was $641.26 billion, down from $651.6 billion in the same period a year earlier. (Reporting by David Lawder; Editing by Padraic Cassidy)

After hitting 3.38 and retracing to the 3.40 target, 10yr notes continue to grind it out around those levels in a tight range. Although they continue to lag the overall treasury rally, FNCL 4.5's have made up a bit of ground having moved up to 101-31 which is 10 ticks up on the day. Even if MBS aren't able to make it much higher (and there's a good chance that the going will be increasingly difficult above 102-00, the gains seen are good enough to see a few more lenders reprice for the better beyond those who simply had "room to do it" from relatively non-aggressive morning rate sheets. But we do expect 102-00 to have a lot of gravity for FNCL 4.5's, all else being equal.

Treasuries are getting all the love at the moment as the 10yr note finally cracked it's 3.42 resistance and moved to bounce at 3.38. Yields are now back on the 3.40 target which feels pretty nominal to us considering the auction results and the extra "oomph" for the flight-to-safety bid courtesy of breaking news of Saudis firing on protesters. FNCL 4.5's have lagged treasuries by comparison, not even making it back to the morning highs yet (they did shoot higher briefly, but it looks more like an illiquidity driven spike in the charts rather than sustained interest in 102+ 4.5's. This phenomenon of MBS resisting a move into 102-00 is not something we should be shocked about considering the current "situation" regarding 4.875 current coupons, stack compression, and huge barriers to ramping up a real 4.0 FNCL market. So based on the general health of the bond market, would you expect reprices? Sure! But given that this morning's MBS prices were 101-28/29 and that current prices are 101-26, it might not be so likely. A lot depends on how aggressive a lender priced out of the gate.

*** U.S. SELLS $13 BLN 29-YEAR 11-MONTH BONDS AT HIGH YIELD 4.569 PCT, AWARDS 45.51 PCT OF BIDS AT HIGH ***BID-TO-COVER RATIO 3.02, NON-COMP BIDS $18.80 MLN ***PRIMARY DEALERS TAKE $6.88 BLN OF 29-YEAR 11-MONTH BONDS SALE, INDIRECT $5.28 BLN

The Federal Reserve Board is offering a webinar on the TILA changes on March 17th. Check out its Philadelphia Member Bank Website to register.

Apart from the obvious question of "what is the effect on MBS prices," we're looking for a few other milestones following the upcoming 30yr Bond Auction. On a basic level, if 10yr yields are coaxed through today's earlier resistance at 3.42, that's a good development. But on a bit of a deeper level, it's an even better development if it coincides with a yield curve that continues to flatten. The curve had been widening out to recent resistance levels coming into yesterday's auction. Hitting that resistance coincided with strong results which catapulted the curve back into the 270's after hitting nearly 284 bps. It's trended gradually tighter since then, but met some support before getting to 275 bps. If the curve flattens past 275 following the auction that will be a good benchmark for whether or not it was well-received, and perhaps the best indication of ongoing overall slight bullishness in bond markets.

FNCL 4.5's hit 101-22 at their best yesterday. After this morning's rally, MBS and treasuries alike have pulled back as stocks put in their lows, but FNCL 4.5's remain at 101-24 or better. 10's weakened from 3.42 to 3.46 but found some support there, having since moved to 3.451. The pace of the weakening in the bond market is slightly faster than the pace of the recovery in stocks, likely due to the pre-auction concessionary vibe that is common in the few hours preceding an auction. But the positive correlation of the stock lever remains exceedingly high.

MND has learned from sources close to FHA Commissioner David Stevens that he plans to resign from his position in coming weeks to take another job outside the Administration. UPDATED: WASHINGTON, March 10 (Reuters) - David Stevens, a key adviser to President Barack Obama on housing policy, plans to step down as head of the Federal Housing Administration in the next few weeks, the U.S Housing and Urban Development Department said on Thursday. "This is just the right time to transition and to get some fresh legs here," Stevens told Reuters in a brief telephone interview. Stevens said he is "not sure yet" what he would do after leaving the administration, which he joined almost two years ago. Housing and Urban Development Secretary Shaun Donovan praised Stevens for his leadership during a "historic time" for the FHA, which does not make loans directly but guarantees them against default. "Dave has been singularly focused on restoring FHA to fiscal health to protect taxpayers and ensure it can fulfill its mission of making homeownership available to qualified moderate-income, underserved and first-time home buyers," Donovan said in a statement. (Reporting by Corbett B. Daly; Editing by Leslie Adler)

Two of the five major lenders are priced aggressively when compared to rate sheet rebate yesterday. Look for Wells and Citi and their pass-through lenders to be more sensitive to falling MBS prices. We'd look for the sensitive lenders to start recalling rate sheets if the FNCL 4.5 crosses through 101-22. Otherwise loan pricing is generally in-line with current MBS indications. Broad-based reprices for the worse are more likely to hit inboxes if the FNCL 4.5 touches 101-18 and holds that level.