MBS MID-DAY: European Headlines Fuel Bond Market Rally

MBS Pricing Snapshot

Though there are no confirmed statements, the Cypriot Central Bank is rumored to have said that it will leave the Eurozone if a bailout bill isn't passed. This isn't far from most market participant's expectations, but is still having a headline-shock effect pushing Treasuries and MBS to their best levels of the day, sapping the Euro and Equities' prices.

It could be a knee-jerk that bounces back when more clarity arrives or it could be extended by said clarity. Whatever the case turns out to be, 10's are currently down to 1.913 and Fannie 3.0s are up 6 ticks to 103-04. S&P's are off roughly 6 points from opening levels. Lenders that priced early may soon consider positive reprices if current levels are held or improved upon.

Bond markets began the overnight session weaker, heading higher in yield for most of the Asian trading hours. The stock lever was well-connected and stock prices began to fall along with Treasury yields. This was most salient after a spokesman for Cyprus said that Parliament would not be able to approve the bank levy.

Several hours later, details emerged regarding some structural changes to the plan that would spare deposits under €20k, and adjust the percentage to 6.7 for deposits from €20k - €100k. Anything over that would get hit with 9.9%. We'd emphasize the murkiness of the details at this point though. Even within the past hour, other reputable sources are mentioning that Cyprus considering removing the levy on everything under €100k and raising it over the previously sacred 10% mark on deposits over €100k. This sounds a lot like the 15.6% plan mentioned in wires late yesterday.

Whatever the case, the vote--if it happens today--should be coming up in a few hours and more than anything, this dominates the market's focus.

Housing Starts data was completely glossed-over in terms of market reaction. S&P Futures bottomed out at 6:50am and moved back to overnight highs, being careful not to break them. Treasuries acquiesced to the "risk-on" bounce, but certainly haven't followed equities, preferring instead to simply level off in the middle of yesterday's overnight session.

This leaves 10yr yields at 1.9355 and Fannie 3.0s up 3 ticks at 103-01. S&P futures are 2.75 pts higher at 1549.50 vs overnight and AM highs near 1551.

There are no further economic reports out today, and to reiterate, we're waiting on Cyprus news, including, but not limited to (and not necessarily counting on) a parliamentary vote.

- Feb Starts 917k vs 915k Consensus
- Jan Starts revised to 910k from 890k
- Permits 946k vs 925k Consensus
- Both metrics highest since June 2008
- Market Reaction: Housing Starts traditionally have a high margin of error. This print is no exception with a ±13.7% on Starts. Even then, we wouldn't expect a major reaction to this data given the other events in play r soon to be in play (Cyprus, FOMC...)

The U.S. Census Bureau and the Department of Housing and Urban Development jointly announced the following new residential construction statistics for February 2013:

BUILDING PERMITS
Privately-owned housing units authorized by building permits in February were at a seasonally adjusted annual rate of 946,000. This is 4.6 percent (±0.8%) above the revised January rate of 904,000 and is 33.8 percent (±1.4%) above the February 2012 estimate of 707,000. Single-family authorizations in February were at a rate of 600,000; this is 2.7 percent (±0.7%) above the revised January figure of 584,000. Authorizations of units in buildings with five units or more were at a rate of 316,000 in February.

HOUSING STARTS
Privately-owned housing starts in February were at a seasonally adjusted annual rate of 917,000. This is 0.8 percent (±10.6%)* above the revised January estimate of 910,000 and is 27.7 percent (±13.7%) above the February 2012 rate of 718,000. Single-family housing starts in February were at a rate of 618,000; this is 0.5 percent (±12.1%)* above the revised January figure of 615,000. The February rate for units in buildings with five units or more was 285,000.

HOUSING COMPLETIONS
Privately-owned housing completions in February were at a seasonally adjusted annual rate of 711,000. This is 0.6 percent (±10.0%)* below the revised January estimate of 715,000, but is 24.3 percent (±12.2%) above the February 2012 rate of 572,000. Single-family housing completions in February were at a rate of 574,000; this is 3.6 percent (±11.7%)* above the revised January rate of 554,000. The February rate for units in buildings with five units or more was 130,000.