MBS MID-DAY: Holding Gains As Bernanke Speaks, Italy Remains Uncertain

MBS Pricing Snapshot

With unemployment well above normal levels and inflation subdued, progress toward the Federal Reserve's mandated objectives of maximum employment and price stability has required a highly accommodative monetary policy. Under normal circumstances, policy accommodation would be provided through reductions in the FOMC's target for the federal funds rate--the interest rate on overnight loans between banks. However, as this rate has been close to zero since December 2008, the Federal Reserve has had to use alternative policy tools.

Full Speech:

- Sales 437k vs 381k Consensus
- 15.6% increase is largest since April 1993, highest level since July 2008 (but note 18.9% margin of error)

Sales of new single-family houses in January 2013 were at a seasonally adjusted annual rate of 437,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 15.6 percent (±18.9%)* above the revised December rate of 378,000 and is 28.9 percent (±21.7%) above the January 2012 estimate of 339,000.

The median sales price of new houses sold in January 2013 was $226,400; the average sales price was $286,300. The seasonally adjusted estimate of new houses for sale at the end of January was 150,000. This represents a supply of 4.1 months at the current sales rate.

- Confidence 69.6 vs 61.0 Consensus

The Conference Board Consumer Confidence Index®, which had declined in January, rebounded in February. The Index now stands at 69.6 (1985=100), up from 58.4 in January. The Present Situation Index increased to 63.3 from 56.2. The Expectations Index improved to 73.8 from 59.9 last month.

The monthly Consumer Confidence Survey®, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch. The cutoff date for the preliminary results was February 14.

Says Lynn Franco, Director of Economic Indicators at The Conference Board: “Consumer Confidence rebounded in February as the shock effect caused by the fiscal cliff uncertainty and payroll tax cuts appears to have abated. Consumers’ assessment of current business and labor market conditions is more positive than last month. Looking ahead, consumers are cautiously optimistic about the outlook for business and labor market conditions. Income expectations, which had turned rather negative last month, have improved modestly.”

- 20 City prices +0.9 Seasonally Adjusted, Vs +0.5 Forecast
- non-adjusted +0.2 vs -0.2 Forecast
- Year/Year +6.8 pct, most since July 2006

Data through December 2012, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, showed that all three headline composites ended the year with strong gains. The national composite posted an increase of 7.3% for 2012. The 10- and 20-City Composites reported annual returns of 5.9% and 6.8% in 2012. Month- over-month, both the 10- and 20-City Composites move d into positive territory with gains of 0.2%; more than reversing last month’s losses. In addition to the three composites, nineteen of th e 20 MSAs posted positive year-over-year growth – only New York fell.

The overnight session was fairly straightforward with US Treasuries continuing to do what they did for most of Monday: follow the Euro. Asian hours saw a sideways-to-slightly-weaker slide as both Euros and Treasuries hit new 1+ month lows heading into the European session.

10's made it as low as 1.836 and along with Bunds and the Euro, bounced slightly higher before leveling off into a narrow but choppy range trade that persisted throughout the night. 10's hit New york in a range of 1.88 to 1.86 and are currently just under a bp higher at 1.874. S&P futures never moved lower after 5pm and are now at their best levels of the overnight session, roughly 10 points improved from Monday's close.

MBS came in the door a few small ticks weaker than yesterday's mighty (relative) closing levels at 103-19. They've been no higher so far this morning and are currently 2 ticks off on the session at 103-17. House price data is coming up with Consumer Confidence, New Home Sales and Bernanke at 10am.