MBS MID-DAY: Docile Data Meets Euro Uncertainty Resulting In Flatness

MBS Pricing Snapshot

- Headline +2.0 vs -2.0 Consensus (-12.5 last month)
- Highest since September 2012
- Employment Index highest since April 2012
- Market Reaction: Bond markets continue to hold ground in moderately stronger territory.

Manufacturers responding to the March Business Outlook Survey reported slight increases in business activity this month. Indicators for general activity and new orders increased notably, following negative readings over the previous two months. Indicators for shipments and employment remained positive and improved slightly this month. Changes in the survey’s broad indicators of future activity were mixed but continued to reflect general optimism about growth over the next six months.

- EHS 4.98 mln Annual Rate
- Highest Since November 2009
- But missed consensus of 5.00 mln
- Inventory at 4.7 Months based on current pace
- 25 pct distressed vs 23 pct previously

February existing-home sales and prices affirm a healthy recovery is underway in the housing sector, according to the National Association of Realtors. Sales have been above year-ago levels for 20 consecutive months, while prices show 12 consecutive months of year-over-year price increases.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 0.8 percent to a seasonally adjusted annual rate of 4.98 million in February from an upwardly revised 4.94 million in January, and are 10.2 percent above the 4.52 million-unit level seen in February 2012. February sales were at the highest level since the tax credit period of November 2009.

Lawrence Yun , NAR chief economist, said conditions for continued housing improvement are at play. "Job growth in the improving economy and pent-up demand are causing both home sales and rental leasing to rise. Though home prices are rising much faster than rents, historically low mortgage rates are still making home purchases affordable," he said. "The only headwinds are limited housing inventory, which varies greatly around the country, and credit conditions that remain too restrictive."

Washington, DC – U.S. house prices rose 0.6 percent on a seasonally adjusted basis from December to January, according to the Federal Housing Finance Agency’s monthly House Price Index (HPI). The previously reported 0.6 percent increase in December was revised downward to a 0.5 percent increase. For the 12 months ending in January, U.S. prices rose 6.5 percent. The U.S. index is 14.4 percent below its April 2007 peak and is roughly the same as the September 2004 index level. National home prices have not declined on a monthly basis since January 2012.

For the nine census divisions, seasonally adjusted monthly price changes from December to January ranged from -0.7 percent in the New England division to +1.6 percent in the Pacific division, while the 12-month changes ranged from +0.4 percent in the Middle Atlantic division to +14.1 percent in the Mountain division.

FHFA uses the purchase prices of houses with mortgages owned or guaranteed by Fannie Mae or Freddie Mac to calculate the monthly index. Monthly index values and appreciation rate estimates for recent periods are provided in the table and graphs on the following pages. For complete historical data. See:

As the first hints of directional movement begin to emerge following Jobless Claims data this morning, Treasuries and MBS are holding their ground in slightly better territory vs yesterday's latest levels. Fannie 3.0 MBS are up 3 ticks at 102-23 and Treasuries are up 1.5 bps at 1.9424. S&P Futures are roughly 2 points lower than yesterday's 4pm levels.

The overnight session began with a bond markets weakening slightly in Asian hours after slightly stronger Chinese manufacturing data, but volume was lighter than average. European data was mostly weaker with the exception of strong Retail Sales in the UK, but to whatever. None of it was of much consequence compared to the incessant focus on Cyprus-related headlines.

To that end, 4:30am comments from Eurogroup's Djisselbloem were a focal point in terms of volume and resiliency for Treasuries. Cyprus's ongoing efforts to strike a deal with Russia were dismissed as an ineffective solution to a problem that would most easily be solved by the proposed bank levy. Djisselbloem even said that "some sort of levy on deposits is inevitable" in the final bailout package.

An exclusive Reuters story offered additional details on the Eurogroup call and revealed the attitudes of Finance Ministers to be generally more concerned than trading levels in risk-sensitive markets would seem to suggest. With Russian support uncertain, Cyprus flustered, the Eurogroup insistent on levies that received ZERO votes, and the ECB threatening to cut off emergency lending on Monday if no deal is reached, bond markets managed to muster just enough of a "risk-off" bid to stay in positive territory into US hours.

Jobless Claims were slightly lower than expected, but it was taken in stride, especially against the backdrop of all that moderately concerning "Cyprus stuff." Markit's preliminary (or "Flash") PMI did little to change the "sideways to slightly positive" tone in force thus far in the domestic session. We now wait for the 9:30am equities open followed by Philly Fed and Existing Home Sales at 10am.

- Claims Rise to 336k from 334k, Consensus=342k
- 4-week moving average 339,750, lowest since Feb 2008
- Continues claims 3.053 vs 3.050 Consensus
- Market Reaction: Neither stocks nor bonds seem too impressed or flustered so far, limited movements on either side.

In the week ending March 9, the advance figure for seasonally adjusted initial claims was 332,000, a decrease of 10,000 from the previous week's revised figure of 342,000. The 4-week moving average was 346,750, a decrease of 2,750 from the previous week's revised average of 349,500.

The advance seasonally adjusted insured unemployment rate was 2.4 percent for the week ending March 2, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending March 2 was 3,024,000, a decrease of 89,000 from the preceding week's revised level of 3,113,000. The 4-week moving average was 3,098,250, a decrease of 28,250 from the preceding week's revised average of 3,126,500.