MBS MID-DAY: 3/7/2012

Commercial and multifamily mortgage delinquency rates declined during the fourth quarter of 2011, and an analysis of data from the Federal Deposit Insurance Corporation (FDIC) shows that commercial and multifamily mortgages have fared better through the credit crunch and recession than any other major type of loan held by banks and thrifts, according to two reports released today by the Mortgage Bankers Association (MBA).

During the fourth quarter, the 60+ day delinquency rate for loans held in life company portfolios fell 0.02 percentage points to 0.17 percent. The 60+ day delinquency rate for multifamily loans held or insured by Freddie Mac fell 0.11 percentage points to 0.22 percent. The 90+ day delinquency rate for loans held by FDIC-insured banks and thrifts fell 0.20 percent to 3.55 percent. The 30+ day delinquency rate for loans held in commercial mortgage-backed securities (CMBS) fell 0.36 percentage points to 8.56 percent. The 60+ day delinquency rate for multifamily loans held or insured by Fannie Mae increased 0.02 percentage points to 0.59 percent. These and other figures come from MBA's Commercial Real Estate/Multifamily Finance Mortgage Delinquency Rates for Major Investor Groups report.

Stocks and Treasury yields trudged noncommittally higher overnight with 10yr notes trading into the 1.97's before falling back to unchanged by 8am on news that Greece only had 39% of private bond-holders committed to the private-sector-bond swap ahead of Thursday's deadline. MBS opened dead even with yesterday's latest levels.

An ADP Private Payrolls report that just barely beat expectations was apparently enough for Treasury yields to back up to overnight highs and for MBS to fall briefly to yesterday's lows before settling in around 5 ticks weaker at the moment at 103-16.

Key pivot points for MBS lie at 103-23 and 103-10, but 103-18 has also been a reasonably well-traveled price level, seeing it's fair share of ceiling/floor bounces.

The Productivity and Costs report is also assumed to play some small role in this morning's bond market weakness with a slightly better than expected read on productivity and a significantly higher-than-expected "unit labor cost" component, +2.8% vs a +1.2% consensus.

What we're essentially witnessing is minor bond-bearish bounce that undoes a moderate amount of yesterday's gains, but not a runaway reversal in momentum. To be clear, momentum is decidedly sideways, holding out for clearer indications from the Greek debt swap and of course, Friday's NFP.

So far this morning, 10yr yields have managed to hang on to a ceiling bounce just slightly lower than yesterday's first example of a similar ceiling bounce. Today could be on the volatile side, however, with little else on the calendar left to inform directionality and contending with technical gravity pulling 10yr yields back toward their linear regression line to the last NFP report, perfectly flat at 1.983.

Keep an eye out for a meaningful break of that level as well as the previously mentioned pivots for MBS as milestones of deterioration in the case of 103-10 or improvement in the case of 103-23.

RTRS - U.S. Q4 NON-FARM PRODUCTIVITY REVISED TO +0.9 PCT (CONSENSUS +0.8 PCT), PREV +0.7 PCT

RTRS - U.S. Q4 NON-FARM UNIT LABOR COSTS REVISED TO +2.8 PCT (CONSENSUS +1.2 PCT), PREV +1.2 PCT

Nonfarm business sector labor productivity increased at a 0.9 percent annual rate during the fourth quarter of 2011, the U.S. Bureau of Labor Statistics reported today. The gain in productivity reflects increases of 3.7 percent in output and 2.7 percent in hours worked. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the fourth quarter of 2010 to the fourth quarter of 2011, productivity grew 0.3 percent, as output rose 2.3 percent and hours rose 1.9 percent. Annual average productivity increased 0.4 percent from 2010 to 2011.

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers. The measures released today were based on more recent source data than were available for the preliminary report.

Unit labor costs in nonfarm businesses increased 2.8 percent in the fourth quarter of 2011, as productivity grew at a slower rate (+0.9 percent) than hourly compensation (+3.7 percent). Unit labor costs rose 3.1 percent over the last four quarters. Annual average unit labor costs increased 2.0 percent from 2010 to 2011.

BLS defines unit labor costs as the ratio of hourly compensation to labor productivity; increases in hourly compensation tend to increase unit labor costs and increases in output per hour tend to reduce them.

Employment in the U.S. nonfarm private business sector increased by 216,000 from January to February on a seasonally adjusted basis. The estimated advance in employment from December to January was revised slightly upwards to 173,000 from the initially reported 170,000. Employment in the private, service-providing sector rose 170,000 in February, and employment in the private, goods-producing sector increased 46,000 in February. Manufacturing employment increased 21,000.

According to today’s ADP National Employment Report, employment in the nonfarm private business sector rose 216,000 from January to February on a seasonally adjusted basis. Employment in the private, service-providing sector increased 170,000 in February, after rising a revised 149,000 in January. Employment in the private, goods-producing sector rose 46,000 in February. Manufacturing employment increased 21,000, while construction employment advanced 16,000 and the financial services sector added 14,000 jobs during that period.

This month’s employment gains in The ADP National Employment Report continue to be solid, with job growth averaging just over 200,000 for the past five months, said Carlos Rodriguez, President and CEO of ADP. ―Also, for February, virtually every sector of the economy added jobs – something I hope will continue for the rest of 2012.

―Employment grew in all the major sectors of the economy tracked in The Report, and across payrolls of all sizes. Employment on medium payrolls—those with 50 to 499 workers—rose 88,000 in February. Employment on large payrolls—those with 500 or more workers—increased 20,000 during that same period,‖ Prakken noted.

Mortgage applications decreased 1.2 percent from one week earlier, according to data from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending March 2, 2012.

The Market Composite Index, a measure of mortgage loan application volume, decreased 1.2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 10.2 percent compared with the previous week. The Refinance Index decreased 2.0 percent from the previous week. The seasonally adjusted Purchase Index increased 2.1 percent from one week earlier. The unadjusted Purchase Index increased 14.7 percent compared with the previous week and was 7.8 percent lower than the same week one year ago. Last week's results included an adjustment for the Presidents Day holiday.