The Day Ahead: Class A MBS Roll, Debt Auction, Wholesale Trade

Benchmark interest rates traveled higher early in in the overnight session after positive data from China set global equity markets on an upward path.

"Global market activity is more upbeat this morning despite all of the ongoing angst in Europe," said economists at BMO Capital Markets, noting several indexes in Europe  are up 1.25% or more. "Strong data out of China are likely fueling the larger appetite for risk."

The Chinese trade surplus widened to $11.4 billion in March, easily beating forecasts for an increase to $3.3 billion.

The 10-year Treasury note is however recovering from modest overnight weakness after it strengthened to 3.14% on Monday, its lowest yield since late December. 10s are currently -1/32 at 103-28 yielding 3.160%. The 2s/10s curve is 1bp flatter at 260bps wide and the FNCL 4.5 MBS coupon is +1/32 at 103-19. Treasuries will be closely watched as the market absorbs a $72 billion batch of new debt supply, starting with $32 billion 3-yr notes today at 1pm.

S&P 500 futures are 5.25 points higher at 1,348.00 and Dow futures are up 46 points at 12,674.  The two indexes closed 6.1 points and 46 points higher on Monday, respectively. Oil prices are 0.52% lower but remain in triple-digits, at $102.02, after appreciable gains on Monday.  Gold prices are up almost 1% to $1,517.40


Key Events Today:

10:00 - The Wholesale Trade report is anticipated to post continued growth in March. In February, inventories jumped 1% on a monthly basis and were up 12.7% from the prior year. Consensus forecasts weren't available for this report, but in its Q1 GDP report, the BEA assumed a growth rate of 0.9% in March.

"Wholesale inventories have increased since the start of 2010 and we expect them to follow their current positive trend," said economists at BBVA, predicting a monthly pickup of 1.1%.

Economists at Nomura Global Economics added: "Wholesalers' inventories likely increased at a solid pace in March, led by stock building as well as higher gasoline prices.

9:30 - Elizabeth Duke, governor at the Fed, will speak on "Fostering Innovation in Community Development Finance." 

10:00 - Tim Geithner, Treasury Secretary, holds a press conference following US-China Strategic and Economic Dialogue in Washington.

12:45 - Jeffrey Lacker, Richmond Fed President. speaks on the economic outlook in Virginia.

Treasury Auctions:
11:30 - 4-Week Bills ($28 billion) 
1:00 - 3-Year Notes ($32 billion)

It's Class A MBS roll day! Fannie Mae and Freddie Mac 30-year coupons move  to June delivery as the monthly settlement process begins for May trades.