MBS MID-DAY: Bond Markets Maintaining Relative Strength During Bernanke Q&A

MBS Pricing Snapshot

Bernanke is now beginning the Q&A period. Bond markets rallied while he was reading prepared remarks, with Fannie 3.5's up 8 ticks to 104-29 and 10yr yields down to 1.6558.

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates falling to new all-time record lows for the sixth consecutive week amid weak economic and job data helping to keep homebuyer affordability high.

News Facts

30-year fixed-rate mortgage (FRM) averaged 3.67 percent with an average 0.7 point for the week ending June 7, 2012, down from last week when it averaged 3.75 percent. Last year at this time, the 30-year FRM averaged 4.49 percent. 15-year FRM this week averaged 2.94 percent with an average 0.7 point, down from last week when it averaged 2.97 percent. A year ago at this time, the 15-year FRM averaged 3.68 percent.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.84 percent this week, with an average 0.7 point, the same as last week. A year ago, the 5-year ARM averaged 3.28 percent.

1-year Treasury-indexed ARM averaged 2.79 percent this week with an average 0.4 point, up from last week when it averaged 2.75 percent. At this time last year, the 1-year ARM averaged 2.95 percent.

Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following links for Regional and National Mortgage Rate Details and Definitions. Borrowers may still pay closing costs which are not included in the survey.

Economic growth has continued at a moderate rate so far this year. Real gross domestic product (GDP) rose at an annual rate of about 2 percent in the first quarter after increasing at a 3 percent pace in the fourth quarter of 2011. Growth last quarter was supported by further gains in private domestic demand, which more than offset a drag from a decline in government spending.

Labor market conditions improved in the latter part of 2011 and earlier this year. The unemployment rate has fallen about 1 percentage point since last August; and payroll employment increased 225,000 per month, on average, during the first three months of this year, up from about 150,000 jobs added per month in 2011. In April and May, however, the reported pace of job gains slowed to an average of 75,000 per month, and the unemployment rate ticked up to 8.2 percent. This apparent slowing in the labor market may have been exaggerated by issues related to seasonal adjustment and the unusually warm weather this past winter.1 But it may also be the case that the larger gains seen late last year and early this year were associated with some catch-up in hiring on the part of employers who had pared their workforces aggressively during and just after the recession.2 If so, the deceleration in employment in recent months may indicate that this catch-up has largely been completed, and, consequently, that more-rapid gains in economic activity will be required to achieve significant further improvement in labor market conditions.

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The overnight session basically traded a range between pivot point contender 1.62 and y'day's high of 1.67, having risen to the latter just ahead of this morning's Jobless Claims report. While Claims were in line with the consensus, Continuing claims were weaker and revised higher last week as well. Perhaps the market reaction is more to do with bond markets being ready for a stronger result and then having a microscopic relief rally on the tame result.

Whatever the case, Treasuries and MBS are just slightly on the positive side of unchanged day-over day. MBS are up 2 ticks in Fannie 3.5's at 104-24 and 4 ticks in Fannie 3.0's at 102-08. 10yr yields are down 1bp from 5pm levels at 1.6490.

There's not other economic data scheduled between now and Bernanke's Congressional Testimony at 10am, which remains the focus of the day. The morning's range isn't looking each to break decisively through either extreme until then.

* 377k vs 377k consensus
* Last week revised to 389k from 383k
* 4 week ave to 377750 from 376k
* continuing claims 3.293 mln vs 3.245 mln consensus
* Cont'd claims last week revised up from 3.242 to 3.259

In the week ending June 2, the advance figure for seasonally adjusted initial claims was 377,000, a decrease of 12,000 from the previous week's revised figure of 389,000. The 4-week moving average was 377,750, an increase of 1,750 from the previous week's revised average of 376,000.

The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending May 26, unchanged from the prior week's unrevised rate.

The advance number for seasonally adjusted insured unemployment during the week ending May 26 was 3,293,000, an increase of 34,000 from the preceding week's revised level of 3,259,000. The 4-week moving average was 3,279,500, an increase of 11,500 from the preceding week's revised average of 3,268,000.