MBS MID-DAY: Generally Weaker Today, But With Support

MBS Pricing Snapshot

Both MBS and Treasuries opened in slightly weaker territory this morning after the European session offered a generally more positive tone. The sense of "risk on" vs yesterday's "risk off" was readily apparent in the tight connection between stocks and bonds overnight. In conjunction with improving German investor sentiment, Spanish debt auctions were strong enough to undo some of yesterday's flight-to-safety.

Weaker-than-expected Housing starts helped bond markets slightly after 8:30am, but as we noted in the "Day Ahead" (linked below, markets remain more interested in the broader tonal shifts in RISK, led primarily by developments in Europe. To that end, the IMF was out at 9am with upward revisions to growth forecasts and more importantly German FinMin Schaeuble followed shortly saying Spain wasn't a candidate for a bailout and that the fundamental Spanish picture wasn't comparable to other countries receiving aid.

Until then, 10yr yields had been honing in on 2% and moved just over 2.01% after the news. At 9:15am, weaker-than-expected Industrial Production data at home helped yields get back to the low 2's, but no discernible break lower yet.

The saving graces are twofold. First, there's a nice little 2 week pivot point just over 2.01 in 10yr yields, we may be seeing some measure of technical support there. Secondly, MBS are outpeforming and down only 1 tick now at 103-15 in Fannie 3.5's. 10yr yields are heavily considering breaking below 2% again, currently up only 2 bps on the day at 2.0016.

No more scheduled data, and ever-waning Euro-drama into this time of day.

* Industrial Output +0.0 vs +0.3 consensus
* Capacity Utilization 78.6 pct as expected
* Manufacturing Output lower, Mining Output Higher
*production dragged down by auto manufacturing

Industrial production was unchanged in March for a second month but rose at an annual rate of 5.4 percent in the first quarter of 2012. Manufacturing output declined 0.2 percent in March but jumped 10.4 percent at an annual rate in the first quarter.

The gain in manufacturing output in the first quarter was broadly based: Even excluding motor vehicles and parts, which jumped at an annual rate of nearly 40 percent, manufacturing output moved up at an annual rate of 8.3 percent and output for all but a few major industries increased 5 percent or more. In March, production at mines rose 0.2 percent and the output of utilities gained 1.5 percent. For the quarter, however, the output of utilities dropped at an annual rate of 13.8 percent, largely as a result of unseasonably warm temperatures over the past several months, while the output of mining fell 5.4 percent. At 96.6 percent of its 2007 average, total industrial production for March was 3.8 percent above its year-earlier level.

The rate of capacity utilization for total industry edged down to 78.6 percent, a rate 2.1 percentage points above its level from a year earlier but 1.7 percentage points below its long-run (1972--2011) average.

* Starts down 5.8 pct vs Feb -2.8 pct
*Unit Rate 654k vs 705k consensus, lowest since 10/11
*permits 747k unit rate vs consensus 710k, highest since 9/08

BUILDING PERMITS
Privately-owned housing units authorized by building permits in March were at a seasonally adjusted annual rate of 747,000. This is 4.5 percent (±1.1%) above the revised February rate of 715,000 and is 30.1 percent (±1.6%) above the March 2011 estimate of 574,000. Single-family authorizations in March were at a rate of 462,000; this is 3.5 percent (±1.1%) below the revised February figure of 479,000. Authorizations of units in buildings with five units or more were at a rate of 262,000 in March.

HOUSING STARTS
Privately-owned housing starts in March were at a seasonally adjusted annual rate of 654,000. This is 5.8 percent (±15.6%)* below the revised February estimate of 694,000, but is 10.3 percent (±14.6%)* above the March 2011 rate of 593,000. Single-family housing starts in March were at a rate of 462,000; this is 0.2 percent (±12.6%)* below the revised February figure of 463,000. The March rate for units in buildings with five units or more was 178,000.

HOUSING COMPLETIONS
Privately-owned housing completions in March were at a seasonally adjusted annual rate of 600,000. This is 4.2 percent (±13.5%)* above the revised February estimate of 576,000 and is 0.5 percent (±15.3%)* above the March 2011 rate of 597,000. Single-family housing completions in March were at a rate of 440,000; this is 1.4 percent (±12.5%)* above the revised February rate of 434,000. The March rate for units in buildings with five units or more was 146,000.