MBS MID-DAY: Back Into Positive Territory After Morning Weakness

MBS Pricing Snapshot

With the exception of a few moments on 2/14, 10yr yields have been no higher than they are right now since the beginning of April 2012. 2.049% was tested several times in the overnight session after a flat open in Asia gave way to weakness in European markets. The latter was initially offset by dovish minutes from England's Central Bank, but ultimately trumped by tightening peripheral spreads and a weak German Bund auction. An ECB governor noted that that the Central Bank would not conduct new easing simply to benefit Germany or core countries.

Communication from Central Banks will continue to be the focus of the day (and week for that matter), as this afternoon's Minutes from the latest FOMC meeting loom large at 2pm. Between now and then, bond markets are certainly already on the back foot as they hook up with equities for a bit of a "risk-on" trade following this morning's data.

Equities futures just made it back over 4pm levels, climbing mostly steadily since internal components of this morning's Housing Starts data were bullish on Single-Family starts, and Building Permits were the highest since mid-2008. This has 10's back up against the ceiling at 2.05, and Fannie 3.0 MBS back in line with opening lows at 102-21. We're expecting the environment to continue to be tougher than not ahead of the Fed Minutes.

- January PPI +0.2 vs +0.4 consensus
- Core PPI +0.2 vs +0.2 consensus
- Energy Prices Fell (gas -2.1, heating oil -0.5)
- Food +0.7, Labor Dept. says 'more than 3 quarters of the rise in January PPI is attributable to increase in food prices.'

The Producer Price Index for finished goods advanced 0.2 percent in January, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Prices for finished goods declined 0.3 percent in December and 0.4 percent in November. At the earlier stages of processing, the index for intermediate goods was unchanged in January, and crude goods prices increased 0.8 percent. On an unadjusted basis, the finished goods index advanced 1.4 percent for the 12 months ended January 2013.

- Headline Starts -8.5 vs +15.7 last time
- 890k Unit rate vs 925k Consensus
- Permits 925k vs 915k Consensus
- Single-Fam Starts +0.8 to 613k. Highest since June 2008

Privately-owned housing starts in January were at a seasonally adjusted annual rate of 890,000. This is 8.5 percent (±11.3%)* below the revised December estimate of 973,000, but is 23.6 percent (±13.4%) above the January 2012 rate of 720,000.

Single-family housing starts in January were at a rate of 613, 000; this is 0.8 percent (±11.7%)* above the revised December fig ure of 608,000. The January rate for units in buildings with five units or more was 260,000

Privately-owned housing units authorized by building permits in January were at a seasonally adjusted annual rate of 925,000. This is 1.8 percent (±0.9%) above the revised D ecember rate of 909,000 and is 35.2 percent (±1.5%) above the January 2012 estimate of 684,000.

Single-family authorizations in January were at a rate of 584, 000; this is 1.9 percent (±0.8%) above the revised December figur e of 573,000. Authorizations of units in buildings with five units or more were at a rate of 311,000 in January.