MBS MID-DAY: Trying To Stay Sideways Ahead Of Auction, FOMC

MBS Pricing Snapshot

Sales of new single-family houses in September 2012 were at a seasonally adjusted annual rate of 389,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.

This is 5.7 percent (±14.8%)* above the revised August rate of 368,000 and is 27.1 percent (±19.3%) above the September 2011 estimate of 306,000.

The median sales price of new houses sold in September 2012 was $242,400; the average sales price was $292,400. The seasonally adjusted estimate of new houses for sale at the end of September was 145,000. This represents a supply of 4.5 months at the current sales rate.

FHFA's report on home prices isn't necessarily a major market mover, but perhaps the fact that it joined the recently growing ranks of data that was "released early," in some way foreshadowed the hectic and relatively fast pace of overnight and early morning developments. Granted, most of the data was scheduled, but taken together with the surprises, it's painted a clear picture of a significantly more active session overnight and into the domestic hours.

On the unscheduled front, today's 'biggie' would seem to be Greece getting a 2yr extension on meeting creditors' budget targets, pushing the deadline into 2016, though the scheduled events seem to have done more to move markets overnight.

Stronger manufacturing in China had bond markets under pressure at the beginning of the overnight session, but Treasuries came roaring back around 4am thanks to weaker-than-expected German IFO (a business climate index) data. From there, German Bunds bounced gradually higher in yield, pulling Treasuries up with them.

We reached the domestic session with Treasuries slightly higher in yield than yesterday's closing levels and MBS opened a few ticks weaker. Since then, the continually churning headline mill in Europe as well as a lack of negative economic data have allowed bond markets to weaken moderately.

Fannie 3.0s are down 4 ticks on the morning at 104-18 and 10yr yields are up 2 bps at 1.7818. FHFA released their home price data early, so all we have left on the morning calendar is the New Home Sales data at 10am, while the afternoon brings the 5yr Note Auction and last but not least, the FOMC Announcement at 2:15pm.

A monthly reading of U.S. private sector employment will undergo changes to put it more in line with the more closely watched government non-farm payrolls report. Automatic Data Processing (ADP.O) said on Wednesday it had made the changes to its private job market report as part of a new partnership with Moody's Analytics. While economists use the report to fine-tune their labor market forecasts, ADP has had a spotty track record of predicting the initial reading for non-farm payrolls. The changes will be in effect as of ADP'S employment report for October, which will be released Nov 1.

The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) signalled only a modest improvement in U.S. manufacturing business conditions in October. At 51.3, the preliminary ‘flash’ PMI reading which is based on around 85% of usual monthly replies, was only marginally higher than the three-year low of 51.1 recorded in September.

PMI index readings above 50.0 signal an increase or improvement on the prior month, while readings below 50.0 indicate a decrease. Manufacturing production increased in October, taking the current sequence of growth to 37 months. Although the month-on-month expansion was only modest, it was nonetheless an improvement from the marginal rise recorded in September.

U.S. house prices rose 0.7 percent on a seasonally adjusted basis from July to August, according to the Federal Housing Finance Agency’s monthly House Price Index (HPI). The previously reported 0.2 percent increase in July was revised downward to a 0.1 percent increase. For the 12 months ending in August, U.S. prices rose 4.7 percent. The U.S. index is 15.9 percent below its April 2007 peak and is roughly the same as the June 2004 index level.

For the nine census divisions, seasonally adjusted monthly price changes from July to August ranged from -0.5 percent in the East South Central division to +3.0 percent in the Pacific division while the 12-month changes ranged from 0.4 percent in the Middle Atlantic division to +11.4 percent in the Mountain division.

FHFA uses the purchase prices of houses with mortgages owned or guaranteed by Fannie Mae or Freddie Mac to calculate the monthly index. Monthly index values and appreciation rate estimates for recent periods are provided in the table and graphs on the following pages. Click here for complete historical data.