MBS MID-DAY: Weakness After ECB, Claims. Off Lows Now

MBS Pricing Snapshot

In a word, yes. The pop higher in Treasury yields and the somewhat rapid shedding of 4 ticks from the first rate sheets of the day make negative reprice risk a possibility already. Of course there's a heavy caveat here based on the timing of a lender's initial rate sheet (some aren't even out yet), but the earlier in the session rates came out, the higher the risk.

After a flat, quiet overnight session, Treasuries hit 8am in New York perfectly in line with yesterday's 5pm levels. Volume and volatility had been light overnight, leaving this morning's ECB Press Conference and domestic economic data to move the needle.

The first vote for bond market weakness came from the lower-than-expected Jobless Claims, which were out at 8:30am, before any snippets of ECB Pres Draghi's press conference had begun. For their part, Draghi snippets have been net-negative for core bond markets with Euros and German Bund yields surging into the 9am hour.

The combination of weaker Bunds on a lack of bullish motivation in Draghi's press conference, and the stronger-than-expected Jobless Claims figures brought 10yr yields up to 1.976 where we've had 2 "ceiling bounces" so far. The analogous support for MBS was seen at 102-30 in Fannie 3.0s, which are now back up to 103-00 (down 6 ticks on the day). 10's are down to 1.9652 (up 2.6 bps on the day). S&P futures are roughly 2 points higher than 4pm levels just ahead of the cash open in stock markets.

Supportive levels are--well... "supportive" for now, but we can't rule out that the bounce is consolidative in preparation for the next move. Draghi's speech is ongoing at the moment and although unlikely, it could still contain a market moving surprise. There is no more significant economic data on tap for today leaving tradeflows, stock lever, and pre-NFP positioning as the main considerations.

- Q4 productivity -1.9 vs -1.6 forecast
- Labor Costs +4.6 vs +4.3 pct forecast
- Market reaction: least of the 3 reports. All about Claims and Draghi

Nonfarm business sector labor productivity decreased at a 1.9 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 0.5 percent in output and 2.5 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 0.5 percent as output and hours worked increased 2.5 percent and 1.9 percent, respectively. Annual average productivity increased 0.7 percent from 2011 to 2012.

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. The measures released today were based on more recent source data than were available for the preliminary report.

Unit labor costs in nonfarm businesses increased 4.6 percent in the fourth quarter of 2012, the combined effect of the 1.9 percent decrease in productivity and a 2.6 percent increase in hourly compensation. Unit labor costs rose 2.1 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.

- Trade Gap $44.45 bln vs $42.6 bln consensus
- Exports down 1.2 vs +2.2 in Dec
- Imports +1.8 vs -2.6 in Dec
- Market Reaction: not much compared to Claims, Draghi

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total January exports of $184.5 billion and imports of $228.9 billion resulted in a goods and services deficit of $44.4 billion, up from $38.1 billion in December, revised. January exports were $2.2 billion less than December exports of $186.6 billion. January imports were $4.1 billion more than December imports of $224.8 billion.

In January, the goods deficit increased $5.7 billion from December to $61.8 billion, and the services surplus decreased $0.6 billion from December to $17.3 billion. Exports of goods decreased $2.0 billion to $130.8 billion, and imports of goods increased $3.6 billion to $192.5 billion. Exports of services decreased $0.1 billion to $53.7 billion, and imports of services increased $0.5 billion to $36.4 billion.

The goods and services deficit decreased $7.8 billion from January 2012 to January 2013. Exports were up $5.8 billion, or 3.3 percent, and imports were down $2.0 billion, or 0.9 percent.

- Claims 340k vs 355k consensus, 347k previously
- Market Reaction: One of the leading sources of weakness so far

In the week ending March 2, the advance figure for seasonally adjusted initial claims was 340,000, a decrease of 7,000 from the previous week's revised figure of 347,000. The 4-week moving average was 348,750, a decrease of 7,000 from the previous week's revised average of 355,750.

The advance seasonally adjusted insured unemployment rate was 2.4 percent for the week ending February 23, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending February 23 was 3,094,000, an increase of 3,000 from the preceding week's revised level of 3,091,000. The 4-week moving average was 3,121,750, a decrease of 37,500 from the preceding week's revised average of 3,159,250.