MBS MID-DAY: Mostly Weaker On Quiet Day, But Off The Lows

MBS Pricing Snapshot

- Continuing in the fine European debt crisis tradition of making decisions without tangible, consequential results, FinMin's agreed to maybe give Greece some cash, maybe later, maybe... Nothing significant happening on this one. Here's a good recap of the convoluted, indecisive conditionality:

(Reuters) - Euro zone finance ministers will give a tentative go-ahead for the disbursement of 44 billion euros in emergency loans to Greece on Tuesday, but the money will only be paid on Dec. 5 if the country meets all remaining conditions.

Officials familiar with preparations for the finance ministers' meeting expect a "political endorsement in principle" on unfreezing loans to Athens, along with a discussion on how to reduce Greek debt and provide two extra years of external financing to allow the country to meet its fiscal targets.

Greece must also show that it has fully committed to a detailed package of economic reforms, called "prior actions", before any further emergency loans can be paid out.

Once ministers have given their political endorsement, proposals on how to cut Greek debt and provide additional financing can be sent to national parliaments for approval, a step that is expected to be completed by Nov. 30.

This will give Athens time to complete the few outstanding "prior actions". International lenders will check if the remaining reforms are in place on Nov. 28 and euro zone finance ministers will make the final decision to pay the next tranche to Athens on Dec. 3, according to the schedule seen by Reuters.

- 46 vs 41 consensus and 41 in October
- Prospective Buyers index unchanged at 35
- Biggest gains in "current sales," 49 vs 41 Oct

Builder confidence in the market for newly built, single-family homes posted a solid, five-point gain to 46 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for November, released today. This marks the seventh consecutive monthly gain in the confidence gauge and brings it to its highest point since May of 2006.

“Builders are reporting increasing demand for new homes as inventories of foreclosed and distressed properties begin to shrink in markets across the country,” said NAHB Chairman Barry Rutenberg, a home builder from Gainesville, Fla. “In view of the tightening supply and other improving conditions, many potential buyers who were on the fence are now motivated to move forward with a purchase in order to take advantage of today’s favorable prices and interest rates.”

“While our confidence gauge has yet to breach the 50 mark -- at which point an equal number of builders view sales conditions as good versus poor -- we have certainly made substantial progress since this time last year, when the HMI stood at 19,” observed NAHB Chief Economist David Crowe. “At this point, difficult appraisals and tight lending conditions for builders and buyers remain limiting factors for the burgeoning housing recovery, along with shortages of buildable lots that have begun popping up in certain markets.”

- 4.79 mln annual rate vs 4.75 consensus
- Last month revised from 4.75 to 4.69 mln
- Lowest inventory since 2002 in units, lowest since 2006 in terms of "months."

Sales of existing homes increased in October, even with some regional impact from Hurricane Sandy, while home prices continued to rise due to lower levels of inventory supply, according to the National Association of Realtors.

Total existing-home sales1, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 2.1 percent to a seasonally adjusted annual rate of 4.79 million in October from a downwardly revised 4.69 million in September, and are 10.9 percent above the 4.32 million-unit level in October 2011.

Lawrence Yun , NAR chief economist, said there was some impact from Hurricane Sandy. "Home sales continue to trend up and most October transactions were completed by the time the storm hit, but the growing demand with limited inventory is pressuring home prices in much of the country," he said. "We expect an impact on Northeastern home sales in the coming months from a pause and delays in storm-impacted regions."

Sometimes bond market weakness is just bond market weakness and this would be one of those mornings. Nothing special stands out about the overnight session in terms of news, data, volume, or volatility--thus far sticking to the script for the holiday-shortened 3.5 day week.

Treasuries kicked off Asian hours in moderately weaker territory while S&P futures were a few points higher than Friday's latest levels. Since then, both Treasury yields and stocks ratcheted higher in a fairly orderly fashion. An ongoing favorable reaction to the ostensible progress on the Fiscal Cliff is one of the only drivers of this "risk-on" movement we can see.

European officials were all over the board last night with comments from ECB's Weidmann, Asmussen, Coeure, and Praet discussing everything from banking supervision to general health of the European recovery. Spain's deputy Economy Minister also mentioned that Spain's banks would need less than €40 bln of the €100 bln they'd been allotted.

More than any of that though, there's just been a moderate, but pervasive push into weaker territory in a structural sense. Tradeflows are skewed in favor of sellers with a reasonably clear picture painted of domestic traders getting in for the day and leaning on the "sell" button by default.

Things are continuing to deteriorate at the moment with 10yr yields up nearly 4bps now at 1.6216. Fannie 3.0 MBS opened at 104-31 but have since moved 4 ticks lower to 104-26 for a total loss of 8 ticks on the day. S&P futures are well into their highs of the session.

There's not much by way of scheduled economic data this morning, and not probably a lynch-pin that markets are waiting for to turn to the tide of moderate weakness. Both hit at 10am with October Existing Home Sales and the NAHB Housing Market Index expected to be mutually unchanged.