MBS RECAP: Volume And Volatility Increase Mid Week

MBS Pricing Snapshot

Reports from the twelve Federal Reserve Districts suggest economic activity continued to expand gradually in July and early August across most regions and sectors. Six Districts indicated the local economy continued to expand at a modest pace and another three cited moderate growth; among the latter, Chicago noted that the pace of growth had slowed from the prior period. The Philadelphia and Richmond Districts reported slow growth in most sectors and declines in manufacturing, while Boston cited mixed reports from business contacts and some slowdown since the previous report.

Real estate markets were generally said to be improving. On the residential side, all 12 Districts cited increases in home sales, home prices, or housing construction. Reports on commercial real estate markets were also generally positive, although San Francisco noted stable demand, Boston indicated conditions were not much changed since the last report, and Richmond, Chicago, and St. Louis said commercial real estate conditions were mixed.

5yr Auction Notes:

- Bid-to-cover: 2.92 vs recent average 2.85
- High yield .708 vs 1pm WI .707
- Indirects 39.6 vs 42% average

All in all, a fairly average auction. We'd be more interested in the slightly stronger bid-to-cover and the stop close to the 1pm WI if it hadn't been for the selling in the morning. The results seem fairly uneventful given that concession. We'd also note the 1:01:30 when-issued yields (right before the results were released) had ticked down to .705. Depending on whether you compare the auction result to that "latest available" yield or the "auction cut-off time yield," it could be viewed in slightly weaker light.

Whatever the case, markets haven't done much with the data since it hit. 10yr yields are no higher than their highest pre-auction levels and MBS prices are no lower. That said, they've done little-to-nothing to bounce back in a stronger direction. That keeps Fannie 3.0s down 9 ticks on the day at 103-02 and 10yr yields up just over 3bps at 1.6694.

Next up: Beige Book at 2pm.

In its latest Quarterly Report on Household Debt and Credit, the Federal Reserve Bank of New York today announced that delinquency rates for mortgages (6.3 percent), credit cards (10.9 percent), and auto loans (4.2 percent) decreased from the previous quarter. However, rates for student loans (8.9 percent)1 and home equity lines of credit (HELOC) (4.9 percent) increased from March.

Household indebtedness declined to $11.38 trillion, a $53 billion decline from the first quarter of 2012. Outstanding household debt has decreased $1.3 trillion since its peak in Q3 2008. The reduction was led by a decline in real estate-related debt like mortgages and HELOC. More information about how Americans are paying down their debt is available in our corresponding blog post.

"The continuing decrease in delinquency rates suggests that consumers are managing their debts better," said Wilbert van Der Klaauw, vice president and economist at the New York Fed. "As they continue to pay down debt and take advantage of low interest rates, Americans are moving forward with rebalancing their household finances."