MBS MID-DAY: Waiting For Auction After Uninspired AM Trading

MBS Pricing Snapshot

The U.S. Census Bureau announced today that August 2012 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $405.4 billion, up 0.9 percent (+/-0.7) from the revised July level and were up 2.1 percent (+/-0.9%) from the August 2011 level. The July preliminary estimate was revised downward $0.4 billion or 0.1 percent. August sales of durable goods were up 0.9 percent (+/-0.9%)* from last month and were up 1.0 percent (+/-1.2%)* from a year ago. Sales of motor vehicle and motor vehicle parts and supplies were up 2.0 percent from last month. Sales of nondurable goods were up 0.9 percent (+/-0.9%)* from July and were up 3.0 percent (+/-1.2%) from last August. Sales of petroleum and petroleum products were up 5.6 percent from last month.

Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $487.5 billion at the end of August, up 0.5 percent (+/-0.4%) from the revised July level and were up 5.3 percent (+/-1.1%) from the August 2011 level. The July preliminary estimate was revised downward $0.3 billion or 0.1 percent. August inventories of durable goods were up 0.1 percent (+/-0.2%)* from last month and were up 7.5 percent (+/-0.9%) from a year ago. Inventories of machinery, equipment, and supplies were up 1.7 percent from last month, while inventories of computer and computer peripheral equipment and software were down 5.1 percent. Inventories of nondurable goods were up 1.2 percent (+/-0.7%) from July and were up 2.3 percent (+/-2.1%) from last August. Inventories of petroleum and petroleum products were up 9.4 percent from last month and inventories of drugs and druggists' sundries were up 1.5 percent.

The overnight session was one of the least riveting in recent memory as bond market yields moved quietly higher in light volume and low volatility. 10yr yields traded a range of 1.703 to 1.736 and are currently sideways at 1.741.

November Fannie 3.0s opened at 104-27, quickly dropped to 104-22, found decent enough support there and have since come off the lows to 104-27, 7 ticks weaker than yesterday's latest levels.

Further confounding the light volume overnight is the lack of any standout market-moving headlines or events. So when we see volume pick up with a brief stint of selling early in the domestic session, it leads us to default conclusions such as "the market isn't necessarily sure what it wants to do or where it wants to go, but Treasuries are trying to make a bit of room for this afternoon's 10yr Auction at 1pm." Such conclusions jive well with the MBS outperformance we've seen in the past hour.

Apart from the auction, there's limited data. MBA mortgage apps are already out, with both the purchase and refi indexes weakening slightly. Wholesale Inventories hits at 10am, but isn't typically a big mover.