MBS MID-DAY: Holding Ground After Digesting Morning Weakness

By: Matthew Graham
MBS Live: MBS Morning Market Summary
MBS have once again entered in to a narrow, sideways holding pattern, though this morning's version follows a move to the downside at the open.  Much of the damage was done overnight as stronger-than-expected German economic data and healthy Spanish debt auctions weighed on safe-haven bond prices.  Early in the domestic session, Greece announced they'd reached a debt buyback target required for the disbursement of bailout funds on Thursday.   This initially added to the pressure on bond markets, but the damage was undone when Euro zone sources noted that the higher-than-expected costs of the buyback put Greece over it's 2020 debt-to-GDP goal (126.6 vs 124 percent).  That's a €450 million gap, and thus a small fraction of the full bailout payment (€34 billion).  Small potatoes, no?  While such considerations were more relevant for domestic bond markets than domestic data (go figure), none of it is as relevant as tomorrow's Fed Announcement with the exception, perhaps, of a significant Fiscal Cliff Tape Bomb.  Boehner will address congress at noon.  Bottom line, same holding pattern waiting for Cliff/FOMC, but adjusted slightly to the weak side.  The triumvirate continues its governance of markets while econ data is relegated to serfdom.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
104-30 : -0-03
FNMA 3.5
106-18 : -0-03
FNMA 4.0
107-04 : -0-02
FNMA 4.5
107-27 : -0-02
GNMA 3.0
106-12 : -0-02
GNMA 3.5
108-16 : -0-03
GNMA 4.0
109-11 : -0-03
GNMA 4.5
109-07 : +0-00
FHLMC 3.0
104-19 : -0-03
FHLMC 3.5
106-05 : -0-06
FHLMC 4.0
106-19 : -0-01
FHLMC 4.5
106-32 : -0-01
Pricing as of 11:03 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.

10:08AM  :  ECON: Wholesale Inventories Up, Sales Down, Mixed Impact From Storm
- Wholesale Inventories +0.6 vs +0.4 Consensus
- Wholesale Sales -1.2 vs +0.1 Consensus
- Stocks/Sales Ratios 1.22 months, highest since Oct 2009
- Commerce Dept says Sandy had positive and negative effects

The U.S. Census Bureau announced today that October 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 $408.5 billion, down 1.2 percent (+/- 0.7) from the revised September level, but were up 2.3 percent (+/-1.1%) from the October 2011 level. The September preliminary estimate was revised downward $0.5 billion or 0.1 percent.

Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $497.1 billion at the end of October, up 0.6 percent (+/-0.4%) from the revised September level and were up 6.6 percent (+/-1.1%) from the October 2011 level. The September preliminary estimate was revised upward $0.2 billion.

The October inventories/sales ratio for merchant wholesalers, except manufacturers’ sales branches and offices, based on seasonally adjusted data, was 1.22. The October 2011 ratio was 1.17.
9:24AM  :  Bond Markets Holding Ground After Opening Weaker
The overnight session got off to a lackluster start with very little movement or volume seen during Asian hours. European peripheral debt kicked off the selling trend for European core debt and ultimately US Treasuries. This began at a moderate pace after Italian 10yr debt moved into positive territory on the day (what's good for Italian/Spanish/Greek debt--aka "periphery"--is generally bad for German debt--aka "core." German debt tends to serve as a rough guide for US debt overnight).

The news that seems to have guided the reversal in Italy is questionable and that movement may have been purely incidental. Less questionable is the positive impact from relatively strong Spanish Bill auctions and the night's biggest mover--strong economic data in Germany. The ZEW economic sentiment index was significantly stronger than expected (+6.9 vs -12.0) and capped off a series of negative developments for Core EU debt and US Treasuries.

Given that the economically bullish data was of European origin, the biggest effects were felt/seen first in German Bunds, but Treasuries followed a lower magnitude version of the sell-off at first, and made up ground as the first domestic traders came online. The most recent shock this morning came shortly before the 8:30am economic data as Greece announced their debt buyback target was reached--a precursor for Thursday's bailout payment. The 8:30am Trade Deficit data subsequently had no effect on bond markets.

Post-Roll (January Coupons now) MBS kicked off the domestic session about an eighth of a point weaker than yesterday's latest levels at 104-28 and currently trade in the same territory after an earlier dip to 104-25 following the Greece news. 10yr yields opened more than 2bps higher and are currently just shy of the morning's highs (1.6509) at 1.6472--holding ground for now, but not confidently stampeding back toward unchanged levels.
8:38AM  :  ECON: Trade Gap Widens Roughly As Expected
- Oct Trade Deficit $42.24 Bln vs $42.6 Bln Consensus
- Exports Down 3.6 pct, Most Since Jan 2009

- Imports/Exports At Lowest Level Since April/Feb 2011 Respectively
- Close enough to consensus that this one is having relatively no impact

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total October exports of $180.5 billion and imports of $222.8 billion resulted in a goods and services deficit of $42.2 billion, up from $40.3 billion in September, revised. October exports were $6.8 billion less than September exports of $187.3 billion. October imports were $4.9 billion less than September imports of $227.6 billion.
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  :  "member forecasts at 2pm, Bernanke press conference at 2:15pm. 10yr Auction earlier than normal, at 11:30am"
Matthew Graham  :  "the announcement is tomorrow at 12:30pm"
Andy Pada  :  "Are we expecting a Fed Announcement today or tomorrow?"
Matthew Graham  :  "RTRS- U.S. OCT WHOLESALE SALES -1.2 PCT (CONSENSUS +0.1 PCT) VS SEPT +1.9 PCT (PREV +2.0 PCT)"
Matthew Graham  :  "RTRS- U.S. OCT WHOLESALE INVENTORIES +0.6 PCT (CONSENSUS +0.4 PCT) VS SEPT +1.1 PCT (PREV +1.1 PCT) "
Ira Selwin  :  "http://www.freddiemac.com/sell/factsheets/ltv_tltv.htm"
Ira Selwin  :  "Jason - Freddie still shows above 90% on their site, but some lenders may take the more restrictive of the two, so just beware of that."
Matthew Graham  :  "Also, if you recall yesterday's mention of Greece extending their debt buyback in order to hit a target required for Thursday's bailout payment, the announcement came that they hit the target around 8:21am, which caused the next little blip to the weak side."
Jason Harris  :  "Is Freddie still going above 90% on ARM's?"
Matthew Graham  :  "correction: Spanish Bill Auctions (not bonds) shorter before (not after) ZEW data"
Matthew Graham  :  "Biggest push overnight followed German ZEW Economic Sentiment Survey which came in at +6.9 vs a -12.0 forecast and -15.7 previous reading. A reasonable reception for Spanish bond auctions followed shortly thereafter and added to pressure on core bond markets. "
Tim Mitchell  :  "pretty soft open, what's up"
Matthew Graham  :  "RTRS- US OCT EXPORTS AT LOWEST LEVEL SINCE FEB; IMPORTS AT LOWEST LEVEL SINCE APRIL 2011"
Matthew Graham  :  "RTRS- US OCT EXPORTS -3.6 PCT, BIGGEST DECLINE SINCE JAN 2009, VS SEPT +3.1 PCT; IMPORTS -2.1 PCT VS SEPT +1.5 PCT "
Matthew Graham  :  "RTRS- US OCT TRADE DEFICIT $42.24 BLN (CONSENSUS $42.6 BLN) VS SEPT DEFICIT $40.28 BLN (PREV $41.55 BLN) "

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