MBS MID-DAY: Improvements Stall At Logical Resistance Targets

By: Matthew Graham
MBS Live: MBS Morning Market Summary
Lowest 10yr yield on 8/28 was 1.6147...  Given that we generally characterize the current week as flattening out into a sideways, if volatile pattern ahead of bigger-ticket events, 1.6147 would then be a good approximate location to look for resistance to moving lower in yield.  The equivalent level for MBS is 103-13 in Fannie 3.0s.  These two might not always line up into the future, but they have lined up this week.  After starting out in slightly better territory this morning, bond markets continued to strengthen.  The strength looks more like it was "unimpeded" by data rather than "driven" by it.  This too, is in line with the sideways range as we bounce back from yesterday's visit to the weaker side.  The strength continued gradually until 10's hit precisely 1.6147 and Fannie 3.0s hit precisely 103-13.  We're not opposed to the prospects of these levels being broken this afternoon or tomorrow, but for now, it doesn't seem like a coincidence that this is exactly where today's rally paused.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.5
105-21 : +0-07
FNMA 4.0
106-31 : +0-04
FNMA 4.5
108-02 : +0-02
FNMA 5.0
109-00 : +0-00
GNMA 3.5
107-27 : +0-08
GNMA 4.0
109-13 : +0-05
GNMA 4.5
109-19 : +0-02
GNMA 5.0
110-15 : +0-01
FHLMC 3.5
105-15 : +0-07
FHLMC 4.0
106-22 : +0-04
FHLMC 4.5
107-16 : +0-03
FHLMC 5.0
108-09 : +0-02
Pricing as of 11:05 AM EST
Morning Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribers this morning.

9:09AM  :  ALERT ISSUED: Slightly Stronger To Open, Slightly Stronger After Data
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.
8:48AM  :  ECON: Jobless Claims Remain Unchanged At 374k
- 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.
8:44AM  :  ECON: Incomes and Outlays Both Exactly As Expected
- 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.
Live Chat Featured Comments
A recap of the featured comments from the MBS Live Dashboard's Live Chat feature, utilized by hundreds of industry professionals each day.

Matthew Graham  :  "QE3 is on. NFP would have to beat, BIG, and pretty much everything else would have to magically improve as well. That said, it won't be a big cannon blast in the same vein as previous iterations."
Jason Wilborn  :  "I dont think one data point even one as big as NFP will stop or provoke Helicopter Ben"
Jerry T  :  "then if NFP next week is a booming number then will Chopper Ben halt the presses?"
Scott Rieke  :  "generally it's going take more than 12 ticks - I'm just feeling optimistic"
Scott Rieke  :  "Who's going to hit the REPRICING button first - come on!"
Adam Quinones  :  "10s just bouncing between the 38% and 50% retrace of all-time lows Jerry, in very very low volume."
Jerry T  :  "markets are going eco-friendly? Lots of green out there"
Jon  :  "Wow, look at 10's."
Ted Rood  :  "Always had a deep respect for Mr. Lockhart, now even more so....."
Jon  :  "I think Bill Gross has a direct phone to Bernanke, like the old school Bat phone...he's calling Ben now I bet..."
Matthew Graham  :  "RTRS - FED'S LOCKHART SAYS NOT OVERLY CONCERNED WITH LONGER TERM COSTS OF MORE ACTION "
Matthew Graham  :  "RTRS - FED'S LOCKHART SAYS COULD DRIVE INTEREST RATES LOWER THAN THEY ARE NOW "
Ira Selwin  :  "close only counts in horseshoes, hand granades, and bocci"
Matthew Graham  :  "RTRS - FED'S LOCKHART SAYS 'CLOSE CALL' ON POLICY ACTION -CNBC "
Matthew Graham  :  "RTRS- US JULY PERSONAL SAVING RATE 4.2 PCT VS JUNE 4.3 PCT "
Matthew Graham  :  "RTRS- US JULY REAL CONSUMER SPENDING +0.4 PCT, HIGHEST SINCE FEB 2012, VS JUNE -0.1 PCT (PREV -0.1 PCT) "
Matthew Graham  :  "RTRS - US JULY CORE PCE PRICE INDEX 0.0 PCT (+0.0290), WEAKEST READING SINCE SEPT 2011 (CONS +0.1 PCT), VS JUNE +0.2 PCT (PREV +0.2 PCT) "
Matthew Graham  :  "RTRS - US JULY PERSONAL INCOME +0.3 PCT (CONS +0.3 PCT) VS JUNE +0.3 PCT (PREV +0.5 PCT) "
Matthew Graham  :  "RTRS- US JULY PERSONAL SPENDING +0.4 PCT, HIGHEST SINCE FEB 2012 (CONSENSUS +0.4 PCT) VS JUNE 0.0 PCT (PREV 0.0 PCT) "
Matthew Graham  :  "RTRS- US CONTINUED CLAIMS FELL TO 3.316 MLN (CONS. 3.307 MLN) AUG 18 WEEK FROM 3.321 MLN PRIOR WEEK (PREV 3.317 MLN) "
Matthew Graham  :  "RTRS - US JOBLESS CLAIMS 4-WK AVG ROSE TO 370,250 AUG 25 WEEK FROM 368,750 PRIOR WEEK (PREVIOUS 368,000) "
Matthew Graham  :  "RTRS - US JOBLESS CLAIMS UNCHANGED AT 374,000 AUG 25 WEEK (CONSENSUS 370,000) FROM 374,000 PRIOR WEEK (PREVIOUS 372,000) "

Read what our user's have to say about MBS Live on LinkedIn.
» Start a two week free trial of MBS Live.