MBS MID-DAY: All Votes in Favor of Bond Market Rally

MBS Pricing Snapshot

The week's last piece of scheduled economic data--Consumer Sentiment--is out with a slightly weaker than expected headline of 75.7 vs a consensus of 76.2 (also March's final reading). Stocks are taking the news hard though we haven't seen quite as much "equal and opposite reaction" in bond markets.

One of the more noticeable divergences from estimates was in the "Current Conditions" component which showed a drop from 86.0 in March to 80.6 today, the lowest since December. But fast forward 12 months, and consumer expectations improved from 79 to 87 on the "12-month outlook," the highest since September 2009.

Inflation expectations were flat for the 5yr component and significantly lower (3.4 vs 3.9) for the 1 year component. This likely represents Consumers' expectations that gas prices "can't stay this high forever..."

Bond markets are trading in positive territory this morning despite some choppiness in the first hour of domestic trade. The overnight session began with weaker than expected GDP out of China sending S&P futures and 10yr yields appreciably lower (relative to a fairly narrow recent range) in more volume than we tend to see during Asian trading hours. European hours helped add on to the gains after markets learned Spain's ECB borrowing hit record levels in March.

This morning's key domestic data, Consumer Prices, were of little consequence as they printed exactly as expected. The movement since then has been relatively small compared to overnight fluctuations.

Stocks and Treasuries have been well-connected since the China GDP data and MBS are basically along for the ride. Fannie 3.5's are up 6 ticks at 103-12 and 10yr TSYs down 4 bps to 2.016. The next domestic economic data hits at 9:55am with Consumer Sentiment.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in March on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.7 percent before seasonal adjustment.

The indexes for food, energy, and all items less food and energy all increased in March. The gasoline index continued to rise, more than offsetting a decline in the household energy index and leading to a 0.9 percent increase in the energy index. The food index rose 0.2 percent as the index for meats, poultry, fish, and eggs increased notably.

The index for all items less food and energy rose 0.2 percent in March after increasing 0.1 percent in February. Most of the major components increased in March, with the indexes for shelter and used cars and trucks accounting for about half the total increase for all items less food and energy. The indexes for medical care, apparel, recreation, new vehicles, and airline fares increased as well, while the indexes for tobacco and household furnishings and operations were among the few to decline in March.

The all items index has risen 2.7 percent over the last 12 months, a decline from last month's 2.9 percent figure. The energy index has risen 4.6 percent and the food index has increased 3.3 percent; both increases are smaller than last month. In contrast, the 12-month change in the index for all items less food and energy, which was 2.2 percent last month, edged up to 2.3 percent in March.