MBS MID-DAY: Tight Trading Range

It's nearly a full 3 hours until the 2yr Treasury Notes auction results are released. Between now and then it looks as if it will take more than this morning's economic data in order to motivate any significant movements outside recent ranges. Previous high yields in 10yr notes were around 3.155 to 3.16 with 3.095 on the opposite side of the range. Since the 830 data, yields have actually moved down a few bps despite the stock market generally strengthening.

The Richmond Fed's composite manufacturing index draws from shipments, new orders and employment. Index values greater than zero suggest expansion, while values less than zero indicate contraction. The Richmond Fed manufacturing index covers activity in the fifth Federal Reserve District, which includes the District of Columbia, Maryland, Virginia, North Carolina, South Carolina and most of West Virginia. In May, the index fell by 6 point versus readings of 10 and 20 in April and March. The shipments components of the index was down 13 points versus +6 in April. Perhaps a modicum of inflation information can be cleaned from the "prices paid" component rising from 4.81% to 6.12% in the previous month."

WASHINGTON, May 24 (Reuters) - New U.S. single-family home sales rose unexpectedly in April to notch their second straight month of gains and prices increased, according to a government report on Tuesday that offered some hope for the stagnant housing market. The Commerce Department said sales increased 7.3 percent to a seasonally adjusted 323,000 unit annual rate, the highest level since December, from a slightly upwardly revised 301,000-unit pace in March. Economists polled by Reuters had forecast new home sales unchanged at a previously reported 300,000-unit rate. All four regions recorded gains in sales, with the West reporting a 15.1 percent rise. However, compared to April last year sales were down 23.1 percent. An oversupply of used houses and a relentless wave of foreclosed properties are curbing the market for new homes, even as builders are keeping lean inventories. There were a record low 175,000 new homes available for sale last month, down 2.8 percent from the prior month. Data last week showed a steep drop in new home construction in April and a dip in sales of previously owned homes. The Commerce Department report the median sales price for a new home rose 1.6 percent last month to $217,900. Compared with April last year, the median price increased 4.6 percent. At April's sales pace, the supply of new homes on the market dropped to 6.5 months' worth, the lowest since April last year, from 7.2 months' worth in March. (Reporting by Lucia Mutikani; Editing by Neil Stempleman)

If you're a 10yr TSY yield, you just had another day spent testing 3.14 and are waking up to yet another failure this morning. Recall that 5/17 was a similar day in terms of yield movements where 10yr notes shot down to the 3.09's and had bounced back above he following day. This translates to a bit of weakness for MBS as FNCL 4.5's are down 2 ticks on the day at 103-12. At these prices, we'd expect loan pricing to come in slightly weaker than yesterday. Reprices for the better will be doled out more conservatively than normal ahead of the known-market-mover, the 2yr Note Auction. 103-07 is the center of the next reprice risk zone, so even 103-08/09 should serve as some sort of early warning sign for "early-to-act" lenders.

BOSTON, May 24 (Reuters) - U.S. consumers, already hard hit by a sharp collapse in home prices, are facing renewed challenges from higher gasoline costs, Federal Reserve Governor Elizabeth Duke said on Tuesday. In remarks focused primarily on financial literacy, Duke offered some flavor of her views on the economy. Her tone was not very optimistic, suggesting she is unlikely to begin pressing for interest rate hikes any time soon. "Family incomes have not kept pace with rising costs, and many families, particularly those with low-to-moderate incomes, are actually facing the decision between buying gas to drive long distances to work and paying their mortgage," Duke said in the remarks, which were prepared for delivery at a conference sponsored by the Boston Fed. Weaker house prices and the resulting difficulties in selling a home have made it harder for Americans to move in search of work, she said, thus further reducing demand for home ownership. "Foreclosures remain high in these areas where the cost of driving to work has become so great," she added. After a retreat in crude oil prices, U.S. gasoline costs fell to $3.85 a gallon in the latest week, the lowest level in five weeks, the Energy Department said on Monday. Although prices are down 11.1 cents from the previous week, the national gasoline price is still $1.06 higher than a year ago. The U.S. economy appears to have hit a soft patch in recent months after several quarters of strong growth. U.S. gross domestic product expanded at an annualized rate of just 1.8 percent in the first quarter. (Reporting by Ros Krasny; Writing by Pedro Nicolaci da Costa; Editing by Leslie Adler)

UPDATED AT 11:21AM