MBS MID-DAY: Improvements Stall At Logical Resistance Targets

MBS Pricing Snapshot

Despite a well-received Italian 10yr Auction, higher German unemployment and weaker Eurozone sentiment helped bond markets arrive at the domestic session in slightly better territory. The morning economic data has encouraged further gains, but we've seen them unfold more gradually over the past 30 minutes as opposed to getting one major data-driven pop just after 8:30am.

Incomes and Outlays were both dead-on with expectations while Jobless Claims were slightly higher than expected. Last week's FOMC Minutes noted that additional easing was likely if the the economy didn't strengthen substantially and sustainably. Essentially, this morning's data being "as expected" data is "not good enough" to satisfy those conditions.

10yr yields are just over 3bps lower now at 1.6199 and MBS are 6 ticks higher in Fannie 3.0s at 103-09. Without regard to data, this morning's rally is consistent with the "volatility within a sideways range ahead of bigger-ticket events" theme that we've been expecting for the week.

If we move to any stronger levels from here, the range would continue to expand in a slightly bullish direction from 8/28's strong levels. Major overhead resistance for MBS at 103-13 though 10yr yields are essentially at or close to their lowest levels since early August.

- 374k vs 370k consensus, 374k previously
- 4 week average rises to 370,250 from 368,750
- Continued Claims fell to 3.316 mln (consensus 3.307 mln)

In the week ending August 25, the advance figure for seasonally adjusted initial claims was 374,000, unchanged from the previous week's revised figure of 374,000. The 4-week moving average was 370,250, an increase of 1,500 from the previous week's revised average of 368,750.

The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending August 18, unchanged from the prior week's unrevised rate.

The advance number for seasonally adjusted insured unemployment during the week ending August 18, was 3,316,000, a decrease of 5,000 from the preceding week's revised level of 3,321,000. The 4-week moving average was 3,321,500, an increase of 9,000 from the preceding week's revised average of 3,312,500.

- Personal Income +0.3 Pct vs +0.3 Pct Consensus
- Personal Spending +0.4 vs +0.4 Pct Consensus
- Core PCE Prices Index +0.029 vs +0.100 Consensus

Personal income increased $42.3 billion, or 0.3 percent, and disposable personal income (DPI) increased $39.9 billion, or 0.3 percent, in July, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $46.0 billion, or 0.4 percent. In June, personal income increased $46.1 billion, or 0.3 percent, DPI increased $37.4 billion, or 0.3 percent, and PCE increased $3.5 billion, or less than 0.1 percent, based on revised estimates.

Real disposable income increased 0.3 percent in July, compared with an increase of 0.2 percent in June. Real PCE increased 0.4 percent, in contrast to a decrease of 0.1 percent.