MBS MID-DAY: Uneventful and Indecisive Ahead of FOMC

MBS Pricing Snapshot

*+1.3 pct vs +1.5 pct forecast
* last month revised to -1.1 from -1.0
* excluding transportation +0.9 vs -0.5 last month
* excluding Defense +1.1 vs -1.3 last month

New orders for manufactured goods in February, up three of the last four months, increased $6.0 billion or 1.3 percent to $468.4 billion, the U.S. Census Bureau reported today. This followed a 1.1 percent January decrease. Excluding transportation, new orders increased 0.9 percent.

Shipments, up nine consecutive months, increased $0.3 billion or 0.1 percent to $462.6 billion. This followed a 0.6 percent January increase.

Unfilled orders, up twenty-two of the last twenty-three months, increased $12.1 billion or 1.3 percent to $931.1 billion. This followed a 0.7 percent January increase. The unfilled orders-to-shipments ratio was 6.23, up from 6.12 in January.

Inventories, up twenty-eight of the last twenty-nine months, increased $2.2 billion or 0.4 percent to $616.8 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.6 percent January increase. The inventories-toshipments ratio was 1.33, unchanged from January.

Overnight volume was fairly light and 10yr yields held a narrow range between yesterday afternoon's highs and lows. After a slightly weaker Asian session, things started to improve in the European session, ultimately resulting in 10's seeing their lowest yields just after the domestic open. Similarly, MBS moved up to 103-02 at the same time.

Fannie 3.5's are slightly off those highs now (103-00) and 10yr TSYs rose from the mid 2.15's to the mid 2.17's. This feels consistent with the theme of "waiting on FOMC Minutes" before making any major decisions about breaking out of recent ranges.

That said, things seem to be erring on the side of strength so far this morning for bond markets. Some investors are hopeful that the greater level of detail afforded by the meeting minutes will give the hints about QE3 that generally seemed absent from the announcement itself on 3/13. That "absence" was among the factors credited with sparking the mid March sell-off.

There are two pieces of economic data coming up this morning: ISM New York at 6:45am and Factory Orders at 10am. As noted in the "Day Ahead" (linked below), although these can have a small scale effect on this morning's trade, we're not expecting significant breaks outside previous levels and reserve such potential for bigger ticket items like this afternoon's FOMC Minutes and the Employment data later in the week.