MBS MID-DAY: Reprices for Worse Possible

Production coupon MBS prices are currently falling from session highs. The FNCL 4.5 is now 7/32 from its best level of the day. Lenders who released rate sheets early may recall and reissue for the worse. Others will simply delay. The end result should be worse rebate compared to yesterday.

Treasuries and MBS have not yet made it back to their weakest levels of the morning, but with 10yr yields at 3.39 and FNCL 4.5's at 102+, they're close. Current losses are not enough to be concerned about from a reprice standpoint yet, but if we cross those weakest levels and show any signs of continuing that trend, reprice risk will be increasing.

*** JAN BUSINESS INVENTORIES +0.9 PCT (CONSENSUS +0.7 PCT) VS DEC +1.1 PCT (PREV +0.8 PCT) *** BUSINESS SALES +2.0 PCT VS DEC +1.6 PCT (PREV +1.1 PCT) *** INVENTORY/SALES RATIO 1.23 MONTHS' WORTH VS DEC 1.25 MONTHS *** BUSINESS SALES RISE STRONGEST SINCE MAR'10 (+2.7 PCT); LEVEL OF SALES $1.178 TRLN, HIGHEST SINCE AUG'08 ($1.180 TRLN) *** BUSINESS INVENTORIES VALUED AT $1.453 TRLN, HIGHEST SINCE $1.456 TRLN IN JAN 2009

*** US CONSUMER SENTIMENT PRELIMINARY MARCH 68.2 (CONSENSUS 76.5) VS FINAL FEB 77.5 *** CURRENT CONDITIONS INDEX PRELIMINARY MARCH 83.6 (CONSENSUS 86.0) VS FINAL FEB 86.9 *** CONSUMER EXPECTATIONS INDEX PRELIMINARY MARCH 58.3 (CONSENSUS 71.6) VS FINAL FEB 71.6 *** 12-MONTH ECONOMIC OUTLOOK INDEX PRELIMINARY MARCH 64 VS FINAL FEB 85 *** 1-YEAR INFLATION OUTLOOK PRELIMINARY MARCH 4.6 PCT VS FINAL FEB 3.4 PERCENT *** 5-YEAR INFLATION OUTLOOK PRELIM MARCH 3.2 PCT VS FINAL FEB 2.9 PCT *** CONSUMER SENTIMENT INDEX AT LOWEST SINCE OCTOBER 2010 *** CONSUMER EXPECTATIONS INDEX AT LOWEST SINCE MARCH 2009 *** CONSUMER 1-YEAR INFLATION INDEX AT HIGHEST SINCE AUG 2008 *** 12-MONTH OUTLOOK AT LOWEST SINCE SEPTEMBER 2010

MBS and Treasuries both briefly touched better levels than yesterday but have since pulled back to the middle of today's range as we await the next economic data. That includes both The Consumer Sentiment Report at 9:55am and Business Inventories at 10:00am. 10yr notes are currently at 3.38 and FNCL 4.5's stand at 101-02.

FNCL 4.5's came in the door at 101-31 but have since moved up to 102-03 after Retail Sales came in as expected at +1.0%. It's probably that a portion of any bullishness seen in the bond market comes as a result of Tsunami-related Flight-To-Safety buying. 10's moved to 3.40 before data and are currently at 3.656.

*** FED'S DUDLEY-MANY INDICATORS SUGGEST CONDITIONS IN PLACE FOR STRONGER GROWTH IN COMING MONTHS ***DUDLEY REPEATS STRONGER RECOVERY WELCOME, NOT REASON FOR FED TO REVERSE COURSE ***DUDLEY - FED STILL FAR AWAY FROM ACHIEVING DUAL MANDATE ***DUDLEY - FASTER PROGRESS TOWARDS FED'S OBJECTIVES WOULD BE WELCOME ***DUDLEY - SUSPECT Q4 2010 GDP MAY UNDERSTATE ECONOMY'S FORWARD MOMENTUM ***DUDLEY - NOW MORE CONFIDENT JANUARY JOB GROWTH WAS TEMPORARILY DEPRESSED BY BAD WEATHER *** DUDLEY - EXPECT JOB GROWTH WILL INCREASE CONSIDERABLY MORE RAPIDLY IN COMING MONTHS ***DUDLEY - AREAS OF VULNERABILITY REMAIN, INCLUDING HOUSING, STATE FINANCES ***DUDLEY SAYS CAN'T RULE OUT POSSIBILITY OF FURTHER SHOCKS FROM ABROAD ***DUDLEY - BOTH HEADLINE AND CORE INFLATION REMAIN BELOW LEVELS CONSISTENT WITH FED MANDATE ***DUDLEY - EXPECT SLACK TO CONTINUE TO DAMPEN PRICE PRESSURES IN NEAR TERM ***DUDLEY REPEATS FED MUST NOT OVERREACT TO RECENT COMMODITY PRICE PRESSURES, WHICH LIKELY TO BE TEMPORARY

*** RETAIL SALES +1.0 PCT (CONSENSUS +1.0 PCT) VS JAN +0.7 PCT (PREV +0.3 PCT) *** RETAIL SALES EX-AUTOS +0.7 PCT (CONS +0.7 PCT) VS JAN +0.6 PCT (PREV +0.3 PCT) *** RETAIL SALES EX-GASOLINE +0.9 PCT VS JAN +0.6 PCT *** RETAIL SALES EX-AUTOS/GAS/BUILDING MATERIALS +0.6 PCT VS JAN +0.7 PCT *** GASOLINE SALES +1.4 PCT VS JAN +1.3 PCT *** CARS/PARTS SALES +2.3 PCT VS JAN +1.2 PCT

Retail Sales are anticipated to rise 1 full 1% in February, more than triple the 0.3% pace increase a month before and double the 0.5% gain in December. Excluding autos the advance should be 0.7%, economists say. "A solid report would remove some of the sting from the surprising dip in January real consumer spending, keeping it on track for a decent 3% annualized advance in Q1," said economists at BMO Capital Markets. "While that would mark a setback from Q4's 4.1% pace, it nonetheless would be a decent performance given the amount of money being poured down the gas tank," they added. "With Americans consuming 140 billion gallons of gasoline each year, the nearly one dollar increase in gasoline prices in the past year translates into a 1½% reduction in annual consumer purchasing power, or a 1% hit to GDP."

(Reuters) - The biggest earthquake on record to hit Japan struck the northeast coast on Friday, triggering a 10-meter tsunami that swept away everything in its path, including houses, ships, cars and farm buildings. The Red Cross in Geneva said the wall of water was higher than some Pacific islands and a tsunami warning was issued for almost the entire Pacific basin, though alerts were lifted for some countries in the region, including Taiwan, Australia and New Zealand. At least 59 people had been killed in the quake and tsunami in Japan, broadcaster NHK said, adding that many were missing. The extent of the destruction along a lengthy stretch of Japan's coastline suggested the death toll could rise significantly. The 8.9 magnitude quake, the most powerful since Japan started keeping records 140 years ago, caused many injuries and sparked fires while the tsunami prompted warnings to people to move to higher ground in coastal areas. Domestic news agencies said a radoactive leak was possible at a nuclear plant in Fukushima prefecture, north of Tokyo, and some 2,000 residents had been told to evacuate the area. Some nuclear power plants and oil refineries were shut down and a refinery was ablaze.