MBS MID-DAY: Trying To Hold Ground Vs Advancing Sell-Off

MBS Pricing Snapshot

A heads up that MBS are back in their weaker territory of the morning as 10yr yields push 1.80 and stocks erase earlier losses.

Fannie 3.0s are down 8 ticks on the day at 104-19, and this could be reprice risk territory for some lenders who priced at the highs just before 10am. It would probably take more prolonged weakness or additional weakness before more lenders were at risk of repricing, but we'd remain defensive here just the same.

We didn't expect much guidance from the Housing Starts data this morning, but it sent a clear shockwave through markets, eliciting the steepest 30 minutes of selling since NFP morning on 10/5.

Bond markets were weaker overnight after Moody's reaffirmed Spain's sovereign debt rating. Spanish bonds rallied significantly vs German benchmarks and when the European periphery rallies vs the core, it's generally coinciding with selling pressure on safe-haven complements such as US Treasuries.

But when we take a step back to look at this morning's movements in the context of the past several sessions, it looks more like the steep sell-off is a two-day event that began yesterday. Against that backdrop, this morning's post-Housing Starts spike joins the broad weakness overnight to merely end up as more of an abrupt move weaker inside a range.

MBS and Treasuries have bounced off their weakest levels so far this morning, but said levels were the worst in several weeks. Fannie 3.0s were down to 104-17 earlier and have since clawed back to 104-23, only 4 ticks down on the day. 10yr yields were as high as 1.781 but are back to 1.764.

The swing back in the other direction is being helped along by a sharp moved lower in stocks after the cash open. In fact, stocks have sold faster in the past 10 minutes than they rallied in the 10 minutes following Housing Starts. That said, Stocks ALSO look to be making moves that are merely spiky in the short term, but in line with longer term trends.

- Starts up 15 pct to 872k vs 770k consensus
- Permits up 11.6pct to 894k vs 810k consensus
- Starts and Permits highest since summer of 2008

BUILDING PERMITS
Privately-owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 894,000. This is 11.6 percent (±1.1%) above the revised August rate of 801,000 and is 45.1 percent (±1.8%) above the September 2011 estimate of 616,000. Single-family authorizations in September were at a rate of 545,000; this is 6.7 percent (±0.9%) above the revised August figure of 511,000. Authorizations of units in buildings with five units or more were at a rate of 323,000 in September.

HOUSING STARTS
Privately-owned housing starts in September were at a seasonally adjusted annual rate of 872,000. This is 15.0 percent (±12.1%) above the revised August estimate of 758,000 and is 34.8 percent (±18.2%) above the September 2011 rate of 647,000. Single-family housing starts in September were at a rate of 603,000; this is 11.0 percent (±11.1%)* above the revised August figure of 543,000. The September rate for units in buildings with five units or more was 260,000.

HOUSING COMPLETIONS
Privately-owned housing completions in September were at a seasonally adjusted annual rate of 683,000. This is 0.4 percent (±11.2%)* above the revised August estimate of 680,000 and is 13.8 percent (±16.2%)* above the September 2011 rate of 600,000. Single-family housing completions in September were at a rate of 524,000; this is 8.5 percent (±15.4%)* above the revised August rate of 483,000. The September rate for units in buildings with five units or more was 145,000.