MBS MID-DAY: 2/16/2012

Reuters: The delinquency rate on U.S. home mortgages fell in the fourth quarter of last year to its lowest level in three years, while fewer homes entered the foreclosure process, an industry group said on Thursday.

The seasonally adjusted delinquency rate on all loans declined to 7.58 percent from 7.99 percent in the third quarter, and down from 8.25 percent a year ago, according to a report from the Mortgage Bankers Association.

It was the lowest level since the third quarter of 2008 as the housing and financial crisis were accelerating.

• RTRS - BUSINESS CONDITIONS FEBRUARY 10.2 (CONSENSUS 9.5) VS JAN 7.3
• RTRS - NEW ORDERS INDEX 11.7 IN FEBRUARY VS 6.90 IN JANUARY
• RTRS - PRICES PAID INDEX 38.7 IN FEBRUARY VS 31.80 IN JANUARY
• RTRS - EMPLOYMENT INDEX 1.1 IN FEBRUARY VS 11.60 IN JANUARY
• RTRS - 6-MONTH BUSINESS CONDITIONS INDEX 33.3 IN FEBRUARY VS 49.00 IN JANUARY
• RTRS - 6-MONTH CAPITAL EXPENDITURES INDEX 18.5 IN FEBRUARY VS 22.90 IN JANUARY
• RTRS - CURRENT BUSINESS ACTIVITY INDEX AT HIGHEST SINCE OCTOBER 2011
• RTRS - EMPLOYMENT INDEX AT LOWEST SINCE AUGUST

Responses from manufacturing firms polled for this month’s Business Outlook Survey suggest that regional manufacturing activity continued to expand in February. The survey’s broad indicators for general activity, new orders, and shipments all increased from their readings in January. Firms reported near-steady employment levels but an increase in average work hours. More firms reported higher input prices this month, and a sizable share of firms reported price increases for their own manufactured goods. The survey’s broad indicators of future activity fell from levels in recent months but continue to reflect op-timism about future manufacturing growth.

30-year fixed-rate mortgage (FRM) averaged 3.87 percent with an average 0.8 point for the week ending February 16, 2012, matching last week when it also averaged 3.87 percent. Last year at this time, the 30-year FRM averaged 5.00 percent.

15-year FRM this week averaged 3.16 percent with an average 0.8 point, matching last week when it also averaged 3.16 percent. A year ago at this time, the 15-year FRM averaged 4.27 percent.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.82 percent this week, with an average 0.8 point, down from last week when it averaged 2.83 percent. A year ago, the 5-year ARM averaged 3.87 percent.

1-year Treasury-indexed ARM averaged 2.84 percent this week with an average 0.6 point, up from last week when it averaged 2.78 percent. At this time last year, the 1-year ARM averaged 3.39 percent.

At the Future of Community Banking Conference, sponsored by the Federal Deposit Insurance Corporation, Arlington, Virginia

The Role of Community Banks in a Challenging Economy
Although community banks provide a wide range of services for their customers, their primary activities revolve around the traditional banking model--specifically, taking short-term deposits to fund longer-term investments, such as small business, agricultural, or commercial real estate loans. Accordingly, risks at community banks tend to arise from their lending, in the form of credit risk, interest rate risk, or concentration risk, rather than from the trading, market-making, and investment banking activities associated with the largest banks. However, by taking on and managing the risks of local lending, which larger banks may be unwilling or unable to do, community banks help keep their local economies vibrant and growing. Importantly, community banks are well positioned to go beyond the standardized credit models used by larger banks and consider a range of factors when making credit decisions. In particular, they often respond with greater agility to lending requests than their national competitors because of their detailed knowledge of the needs of their customers and their close ties to the communities they serve.

It's not that any one piece of this morning's economic data was particularly odious for bond markets, but taken in combination, and perhaps balanced with the realization that continuing trends in economic data make additional Fed QE's less and less likely, Treasuries and MBS have weakened at their fastest pace of the week. 10yr yields shot from 1.91 to 1.95 fairly quickly, aided in that endeavor by moderately low volume. MBS are down 4 ticks on the day to 103-20. Both sides of the market look like they may be digging in against the losses at this point, but it's too soon to say for sure.

With the passing of this data, there's not much left between now and next Tuesday (Monday is a holiday), so fluctuations through this session and the next could have more to do with intangible factors such as positioning the next potential Eurogroup vote on the Greek bailout, scheduled for Monday. That was discussed in slightly greatly detail in "The Day Ahead," linked below:

• RTRS -HOUSING STARTS +1.5 PCT VS DEC -1.9 PCT (PREV -4.1 PCT)
• RTRS -HOUSING STARTS 699,000 UNIT RATE (CONSENSUS 675,000) VS DEC 689,000 (PREV 657,000)
• RTRS -HOUSING PERMITS +0.7 PCT VS DEC -1.3 PCT (PREV -1.3 PCT)
• RTRS -HOUSING PERMITS 676,000 UNIT RATE (CONSENSUS 680,000) VS DEC 671,000 UNIT RATE (PREV 671,000)
• RTRS -SINGLE-FAMILY STARTS -1.0 PCT TO 508,000 UNIT RATE; MULTIFAMILY +8.5 PCT TO 191,000 UNIT RATE

Privately-owned housing starts in January were at a seasonally adjusted annual rate of 699,000. This is 1.5 percent (±16.8%)* above the revised December estimate of 689,000 and is 9.9 percent (±14.2%)* above the January 2011 rate of 636,000. Single-family housing starts in January were at a rate of 508,000; this is 1.0 percent (±19.0%)* below the revised December figure of 513,000. The January rate for units in buildings with five units or more was 175,000.

• RTRS - PPI +0.1 PCT (CONSENSUS +0.4 PCT), VS DEC -0.1 PCT
• RTRS - PPI EXFOOD/ENERGY +0.4 PCT (CONS +0.2 PCT) VS DEC +0.3 PCT
• RTRS - ABOUT 40 PCT OF CORE PPI INCREASE IN JANUARY CAUSED BY 2 PCT RISE IN DRUG PRICES-BLS
• RTRS - YEAR-OVER-YEAR PPI +4.1 PCT (CONS +4.2 PCT), CORE +3.0 PCT (CONS +2.7 PCT)
• RTRS - PPI INTERMEDIATE GOODS -0.4 PCT, EXFOOD/ENERGY -0.1 PCT
• RTRS - PPI CRUDE GOODS +1.5 PCT, EXFOOD/ENERGY +0.6 PCT
• RTRS - PPI ENERGY -0.5 PCT, GASOLINE +2.0 PCT, HEATING OIL -2.9 PCT
• RTRS - US JAN PPI FOOD -0.3 PCT, TOBACCO +0.6 PCT, PASSENGER CARS -0.8 PCT, LIGHT TRUCKS +0.9 PCT

The Producer Price Index for finished goods advanced 0.1 percent in January, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Prices for finished goods declined 0.1 percent in December and moved up 0.2 percent in November. At the earlier stages of processing, the index for intermediate goods fell 0.4 percent in January, and crude goods prices increased 1.5 percent. On an unadjusted basis, the finished goods index advanced 4.1 percent for the 12 months ended January 2012, the smallest year-over-year rise since a 3.6-percent increase in January 2011.

• RTRS - JOBLESS CLAIMS FELL TO 348,000 FEB 11 WEEK (CONSENSUS 365,000) FROM 361,000 PRIOR WEEK (PREVIOUS 358,000)
• RTRS - JOBLESS CLAIMS 4-WK AVG FELL TO 365,250 FEB 11 WEEK FROM 367,000 PRIOR WEEK (PREVIOUS 366,250)
• RTRS - CONTINUED CLAIMS FELL TO 3.426 MLN (CON. 3.500 MLN) FEB 4 WEEK FROM 3.526 MLN PRIOR WEEK (PREV 3.515 MLN)
• RTRS - JOBLESS CLAIMS LOWEST SINCE EARLY MARCH 2008; 4-WEEK AVERAGE LOWEST SINCE APRIL 2008; CONTINUED CLAIMS LOWEST SINCE AUG 2008
• RTRS - INSURED UNEMPLOYMENT RATE FELL TO 2.7 PCT FEB 4 WEEK FROM 2.8 PCT PRIOR WEEK (PREV 2.8 PCT)

In the week ending February 11, the advance figure for seasonally adjusted initial claims was 348,000, a decrease of 13,000 from the previous week's revised figure of 361,000. The 4-week moving average was 365,250, a decrease of 1,750 from the previous week's revised average of 367,000.

The advance seasonally adjusted insured unemployment rate was 2.7 percent for the week ending February 4, a decrease of 0.1 percentage point from the prior week's unrevised rate.

The advance number for seasonally adjusted insured unemployment during the week ending February 4, was 3,426,000, a decrease of 100,000 from the preceding week's revised level of 3,526,000. The 4-week moving average was 3,492,500, a decrease of 8,250 from the preceding week's revised average of 3,500,750.