MBS MID-DAY: 12/20/2011

The U.S. Census Bureau and the Department of Housing and Urban Development jointly announced the following new residential construction statistics for November 2011:

BUILDING PERMITS

Privately-owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 681,000. This is 5.7 percent (±1.6%) above the revised October rate of 644,000 and is 20.7 percent (±1.8%) above the November 2010 estimate of 564,000.

Single-family authorizations in November were at a rate of 435,000; this is 1.6 percent (±1.6%) above the revised October figure of 428,000. Authorizations of units in buildings with five units or more were at a rate of 224,000 in November.

HOUSING STARTS

Privately-owned housing starts in November were at a seasonally adjusted annual rate of 685 000 This is 9 3 percent (±13 1%)* above the revised October estimate of 627,000 and is 24.3 percent (±20.1%) above the November 2010 rate of 551,000.

Single-family housing starts in November were at a rate of 447,000; this is 2.3 percent (±8.0%)* above the revised October figure of 437,000. The November rate for units in buildings with five units or more was 230,000.

The overnight session contained no tape-bombs or major market moving news/data. Most of the chatter centers on German IFO data (a business climate index) coming in stronger than expected, but in order to reconcile that with the fact that the data was released at bond markets' weakest levels of the night, you'd have to buy into the suggestion that a rumor of the IFO number was making rounds an hour earlier or more. We don't particularly care enough to try to find out how credible that assessment might be considering the twofold factors of volume and volatility. Markets haven't moved too terribly much and the year-end-effect continues to be seen in volumes.

Even without German IFO's to lean on, why not just assume some ebbs and flows of the risk-on/risk-off trade as domestic 10yr yields hit the high 1.7's yesterday and with today's auction representing a moderate step toward the longer end of the curve (5yrs vs yesterdays 2's), the need/desire to get in position for the auction? Other popular topics overnight included Spanish and Greek bill auctions, but again, we're seeing ALL the movement happening before all those things, and are thus resigned to either accept the fact that the IFO "rumor" was the driver or simply our easier to swallow "ebbs and flows and low volume ahead of Treasury supply and EU long-term repo operation" theory. Either way, we're good.