MBS RECAP: Holding Gains, But Struggling Vs Treasuries

MBS Pricing Snapshot

The overnight session saw a modest amount of the 'same old' back and forth movement between risk-on and risk-off that has driven markets in their tight ranges so far this week. This time around, it was Spanish and French debt auctions helping reign in peripheral spreads (though we'd note that France is not as "peripheral" as Spain, but it helped the move). Slightly stronger than expected Industrial production in Germany didn't get in the way of the moderate weakness in core debt markets.

To a lesser, but unknown extent, some of the overnight weakness in bond markets (and strength in stock markets) could be due to front-running a positive outcome of the ECB Announcement and Draghi Press Conference. These were relative duds, however, and as markets generally held off on any major reaction to domestic economic data in favor of waiting for Draghi to say something informative.

If anything, Draghi's tilt was bearish, and gave markets reason to expect lighter LTRO repayments going forward. Bond markets have progressively improved since the press conference and the weaker equities open has given us the biggest boost of the morning.

S&P's are down roughly 7 points from their overnight highs, but remain inside their 2 day range. Treasuries, on the other hand, are currently testing a break below their two day range, moving to levels not seen since the post NFP swings on 2/1.

10's are currently down a bp and a half at 1.9496 and MBS are 3 ticks in the green at 103-18. Lenders who priced at 9:30am may soon have to consider positive reprices if current gains hold or are improved upon.

- Productivity -2.0 vs -1.3 consensus
- Labor Costs +4.5 vs +3.0 consensus

Nonfarm business sector labor productivity decreased at a 2.0 percent annual rate during the fourth quarter of 2012, the U.S. Bureau of Labor Statistics reported today. The decrease in productivity reflects increases of 0.1 percent in output and 2.2 percent in hours worked. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the fourth quarter of 2011 to the fourth quarter of 2012, productivity increased 0.6 percent as output and hours worked rose 2.4 percent and 1.8 percent, respectively.

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers.

Unit labor costs in nonfarm businesses increased 4.5 percent in the fourth quarter of 2012, the combined effect of the 2.0 percent decrease in productivity and a 2.4 percent increase in hourly compensation. Unit labor costs rose 1.9 percent over the last four quarters.

BLS defines unit labor costs as the ratio of hourly compensation to labor productivity; increases in hourly compensation tend to increase unit labor costs and increases in output per hour tend to reduce them.

- Claims 366k vs 360k Consensus
- 4-week average 350.5k, lowest since March, 08

In the week ending February 2, the advance figure for seasonally adjusted initial claims was 366,000, a decrease of 5,000 from the previous week's revised figure of 371,000. The 4-week moving average was 350,500, a decrease of 2,250 from the previous week's revised average of 352,750.

The advance seasonally adjusted insured unemployment rate was 2.5 percent for the week ending January 26, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending January 26 was 3,224,000, an increase of 8,000 from the preceding week's revised level of 3,216,000. The 4-week moving average was 3,211,000, an increase of 13,750 from the preceding week's revised average of 3,197,250.