MBS MID-DAY: Off the Highs

With FNCL 4.5's 5 ticks off their 102-18 highs at 102-13. While this is on the edge of reprice risk territory, especially if prices fall any further from here, we remain 13 ticks up on the day and seeing any reprices for the worse here would require a lender who priced relatively early and relatively aggressively. Add to that that treasuries are currently trying to put in a supportive bounce at 3.28 (10yr notes currently at 2.274) and the outright risk level is relatively low. However, if you see MBS at 102-13, risk is slightly elevated and increases if prices move lower from there.

After four consecutive months hovering at the same low level, builder confidence in the market for newly built, single-family homes improved by a single point in March, rising to 17 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the highest level the HMI has reached since May 2010, when the survey period corresponded with the final days of the federal home buyer tax credit program. "Builders are cautiously looking forward to the spring home buying season in hopes that improving economic conditions will help bring more buyers to the table," said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev. "However, the same factors that have been weighing down the market are still very much in play, particularly competition from short sales and foreclosures, consumers' inability to sell their existing home, appraisals that are coming in below construction cost due to the inappropriate use of distressed properties as comps, and restrictive lending conditions for both buyers and builders." Two out of three of the HMI's component indexes held unchanged in March, including the component gauging current sales conditions (holding at 17) and the component gauging traffic of prospective buyers (holding at 12). Meanwhile, the component gauging sales expectations in the next six months rose two points in March to 27, its highest level since May 2010. Regionally, HMI results were mixed in March. While the Northeast posted a one-point decline to 20, the Midwest held flat at 12, the South gained two points to 20 and the West gained four points to 17.

(Reuters) - Treasury Secretary Timothy Geithner on Tuesday vowed to hold U.S. banks accountable for any improper actions they may have taken while processing paperwork for homeowners facing foreclosure. "Those that have acted improperly will be held accountable," Geithner said in prepared testimony to the Senate Banking Committee. (Reporting by Corbett B. Daly; Editing by James Dalgleish) (

(Reuters) - Bahrain declared martial law on Tuesday, looking to end weeks of protests by the island's Shi'ite Muslim majority, with Saudi troops on hand in the Sunni-ruled kingdom to help quell the unrest. The three-month state of emergency will hand considerable powers to Bahrain's security forces, which are dominated by the country's Sunni elite, stoking sectarian tensions in one of the Gulf's most politically volatile nations. In a sign of continued disturbances on the island, an opposition politician said a Bahraini man was killed in clashes with police in the Shi'ite Muslim area of Sitra and several others were wounded. Bahrain TV said the king had "authorized the commander of Bahrain's defense forces to take all necessary measures to protect the safety of the country and its citizens."

Trading volume was huge overnight as Asian accounts liquidated equity positions and reallocated assets into less risky Treasury debt. Activity stayed brisk all the way into early U.S. hours as fast money traders like hedge funds and money managers were forced to cover short positions (squeezed). This led to snowball buying and helped rates rally back to levels not seen since early December. Since then flows have slowed considerably and activity as waned as investors stare slack-jawed at the TV...awaiting the next development in Japan's crisis.

After the release of 8:30am economic data, Treasuries and MBS saw very little movement. 10yr notes stayed in a 3.23 to 3.245 range. Yields rose slightly after the 9am TIC data showed a decrease in net foreign buying of Treasuries. It's questionable as to how connected the market movement is with the data, and even then, at less than a 2bp move higher, it's a relatively insignificant move. The stock lever will likely be in play today and in the first few minutes of stock trading, yields are being pulled right back down into the 3.23's. FNCL 4.5's have cut a 4 tick range between 102-14 and 102-18 and are currently near the high side. The day will continue to be about headlines, and even the normally mighty FOMC statement is expected to be more of a formality today.

*** NET OVERALL CAPITAL INFLOW $32.5 BLN VS REVISED $49.7 BLN INFLOW IN DECEMBER *** NET LONG-TERM INFLOW (EX-SWAPS/OTHER) $51.5 BLN VS REV $62.5 BLN INFLOW DECEMBER *** NET LONG-TERM INFLOW (INCL. SWAPS/OTHER) $32.1 BLN VS REV $38.4 BLN INFLOW IN DECEMBER *** NET FOREIGN PURCHASES OF US TREASURY BONDS, NOTES $46.5 BLN VS $54.60 BLN PURCHASES IN DECEMBER *** NET OFFICIAL CAPITAL OUTFLOW $14.7 BILLION VS $45.1 BLN OUTFLOW IN DECEMBER *** NET PRIVATE CAPITAL INFLOW $47.2 BLN VS REVISED $94.8 BLN INFLOW IN DECEMBER *** CHINA U.S. TREASURY SECURITIES HOLDINGS $1.155 TRLN IN JANUARY VS $1.160 TRLN IN DECEMBER *** JAPAN U.S. TREASURY HOLDINGS $885.9 BLN IN JANUARY VS $882.3 BLN IN DECEMBER

*** NY FED'S EMPIRE STATE INDEX 17.50 IN MARCH (CONSENSUS 17.00) VS 15.43 IN FEB *** NY FED'S EMPIRE STATE EMPLOYMENT INDEX AT 9.09 IN MARCH VS 3.61 IN FEB *** NY FED'S EMPIRE STATE NEW ORDERS INDEX 5.81 IN MARCH VS 11.80 IN FEB *** NY FED'S EMPIRE STATE PRICES PAID INDEX 53.25 IN MARCH VS 45.78 IN FEB *** NY FED'S EMPIRE STATE SIX-MONTH BUSINESS CONDITIONS INDEX 49.35 IN MARCH VS 49.40 IN FEB *** NY FED EMPIRE STATE INDEX AT HIGHEST SINCE JUNE 2010 *** EMPIRE STATE PRICES PAID INDEX AT HIGHEST SINCE AUG 2008 *** EMPIRE STATE EMPLOYMENT INDEX AT HIGHEST SINCE NOV 2010

*** U.S. FEB EXPORT PRICES +1.2 PCT (NOT +1.4 PCT) (CONSENSUS +0.7 PCT) VS JAN +1.3 PCT (PREV +1.2 PCT) *** EXPORT PRICES +1.4 PCT (CONSENSUS +0.7 PCT) VS JAN +1.3 PCT (PREV +1.2 PCT) *** PETROLEUM IMPORT PRICES +3.7 PCT VS JAN +3.1 PCT *** FEB YEAR-OVER-YEAR IMPORT PRICES +6.9 PCT, EXPORT PRICES +8.6 PCT *** NON-PETROLEUM IMPORT PRICES +0.6 PCT, YEAR-OVER-YEAR +3.5 PCT *** YEAR-OVER-YEAR EXPORT PRICES RISE LARGEST SINCE JULY 2008 (+10.2 PCT)

JAPANESE PRIME MINISTER PRESS RELEASES: http://www.kantei.go.jp/foreign/topics/2011/earthquake2011tohoku.html