MBS MID-DAY: Best Levels Since Early March Amid Low Volume

By: Matthew Graham
MBS Live: MBS Morning Market Summary
The absence of European trading and headlines makes for an extremely quiet session today in terms of volume and the pace of events that require responses from human beings.  Despite the generally quiet headline ticker, this morning's ISM data was certainly a positive influence for bond markets.  Combined with a low-volume, corrective move off opening lows, it's made for the appearance of a somewhat while swing from 102-30 to 103-10 in Fannie 3.0 MBS.  Indeed, a 12 tick move is substantial, but it's a bit misleading.  If we give bond markets an extra hour or two to shake off the long weekend and get up and running on a slower-than-normal day, we essentially opened at unchanged levels.  10yr yields were getting settled for the morning a bit weaker than unchanged, but very clearly targeting the 1.87% yield level, which has recently been technically significant.  From these starting points, the ISM data and fertile tradeflow environment (in that it was low-volume AND dominated by short covering) paved the way for a quick run to technical resistance.  For MBS, that's 103-09 to 103-10 and for Treasuries, the same old "1.83's."
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
103-09 : +0-05
FNMA 3.5
105-22 : +0-03
FNMA 4.0
106-22 : +0-03
FNMA 4.5
107-25 : +0-02
GNMA 3.0
104-22 : +0-05
GNMA 3.5
107-22 : +0-04
GNMA 4.0
109-02 : +0-02
GNMA 4.5
109-12 : +0-02
FHLMC 3.0
102-26 : +0-04
FHLMC 3.5
105-12 : +0-03
FHLMC 4.0
106-12 : +0-03
FHLMC 4.5
107-02 : +0-02
Pricing as of 11:08 AM EST
Morning Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribers this morning.

10:23AM  :  Bond Markets Improve After ISM Data, But Hitting Resistance
MBS had slowly but surely ticked back up to positive territory just before the morning's biggest piece of data, ISM Manufacturing at 10am. After a weaker-than-expected print, both MBS and Treasuries continued through to stronger levels, but both have met with some resistance at levels which are not unfamiliar.

10yr Treasuries put in their bounce right at 1.84. While this isn't the lowest yield seen in the past week, it's just another variant of the super important, super long term pivot point that can be seen as anything from 1.83 to 1.845.

MBS hit today's highs at a similarly significant level of 103-09 in Fannie 3.0's which have been the absolute highs since March 6th, also showing up on the 19th and the 27th. This doesn't necessarily mean that we're doomed to trade underneath 103-09, but simply that the resistance is more than serendipitous and any break higher is a net positive from a longer term technical standpoint in addition to whatever it does for intraday positive reprice risk.
10:11AM  :  ECON: Construction Spending Slightly Higher Than Expected
- Construction Spending +1.2 vs +1.0 consensus
- Private spending +1.3, public +0.9
- Private Residential highest since Nov 2008

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during February 2013 was estimated at a seasonally adjusted annual rate of $885.1 billion, 1.2 percent (±1.5%)* above the revised January estimate of $874.8 billion. The February figure is 7.9 percent(±2.1%) above the February 2012 estimate of $820.7 billion. During the first 2 months of this year, construction spending amounted to $120.1 billion, 6.6 percent (±1.8%) above the $112.6 billion for the same period in 2012.

Spending on private construction was at a seasonally adjusted annual rate of $613.0 billion, 1.3 percent (±1.2%) above the revised January estimate of $605.2 billion. Residential construction was at a seasonally adjusted annual rate of $303.4 billion in February, 2.2 percent(±1.3%) above the revised January estimate of $296.9 billion. Nonresidential construction was at a seasonally adjusted annual rate of $309.6 billion in February, 0.4 percent(±1.2%)* above the revised January estimate of $308.3 billion.

In February, the estimated seasonally adjusted annual rate of public construction spending was $272.1 billion, 0.9 percent (±2.5%)* above the revised January estimate of $269.6 billion. Educational construction was at a seasonally adjusted annual rate of $63.2 billion, 0.3 percent (±4.8%)* below the revised January estimate of $63.3 billion. Highway construction was at a seasonally adjusted annual rate of $81.4 billion, 3.4 percent(±7.9%)* above the revised January estimate of $78.7 billion.
10:07AM  :  ECON: ISM Manufacturing Weaker Than Expected
- ISM Manufacturing PMI 51.3 vs 54.2 Consensus
- New Orders 51.4 vs 57.8 Previously
- Employment 54.2 vs 52.6 Previously
- New Orders/Manufacturing lowest since Dec
- Employment highest since June

Market Reaction: Strong response for bond markets, weakness in equities.

From the ISM: "The PMI™ registered 51.3 percent, a decrease of 2.9 percentage points from February's reading of 54.2 percent, indicating expansion in manufacturing for the fourth consecutive month, but at a slower rate. Both the New Orders and Production Indexes reflected growth in March compared to February, albeit at slower rates, registering 51.4 and 52.2 percent, respectively. The Employment Index registered 54.2, an increase of 1.6 percentage points compared to February's reading of 52.6 percent. The Prices Index decreased 7 percentage points to 54.5, and the list of commodities up in price reflected far fewer items than in February. In addition, the Backlog of Orders, Exports and Imports Indexes all grew in March."
9:07AM  :  ECON: Markit Manufacturing PMI Revised Slightly Lower
- PMI 54.6 vs 54.9 preliminary reading
- Although March's "final" PMI came in slightly lower than the "flash" (preliminary reading), it's not having a marked impact on trading levels so far. Some of the ostensible reaction in bond markets was purely tradeflow related with most market participants waiting on the ISM version of the same data. That said, if there has been any reaction, it's been positive for Treasuries/MBS and slightly negative for equities markets, helping continue a bounce back from weaker morning levels.

The final Markit U.S. Manufacturing Purchasing Managers’ Index posted 54.6 in March, signalling a further improvement in overall U.S. manufacturing business conditions. The PMI was up from February’s 54.3 but down from the earlier flash estimate of 54.9, and consistent with a solid rate of expansion.

The PMI averaged 54.9 in Q1 2013 as a whole and, up from 52.6 in Q4 2012, indicated the strongest quarterly performance in two years.

A further strong rise in manufacturing output was recorded in March, although the rate of growth eased to a three-month low. Moreover, all three market groups saw an increase in production over the month, with manufacturers of intermediate goods (suppliers of components to other producers) reporting the strongest expansion.
8:55AM  :  Quiet Overnight Session, Bond Markets Slightly Weaker
With most of Europe taking the day off for the holiday, volumes were exceptionally low overnight. That left the Asian market hours as the primary source of overnight movement. 10's opened slightly higher in yield, digesting the stronger economic data from Friday (markets were closed but Consumer Sentiment and Consumer Spending printed better-than-respected results).

We've seen some mention of stronger Chinese PMI data (Korea stronger too), but aren't seeing a meaningful correlation between that data and market movement. Essentially, 10's held the Asian hours in line with their opening levels at 8pm on Sunday night. The next leg up wasn't until 6am--well after any Asian market events would be having an impact.

As such, it looks like the domestic market participants most able to fight off the allure of the snooze button were willing to run yields a bit higher heading into the 8am open. Buyers put their feet down just before 10's hit 1.89 and we've since stabilized to 1.876.

For their part, MBS are back in line with opening levels of 103-00, and just ticked up to 103-01. This is roughly 3.5 ticks off the earlier lows of the morning, but still 4 ticks down on the day (vs Friday's close).

Markit's Manufacturing PMI is coming up at 8:58 with ISM's version at 10am. Apart from waiting/reacting to headlines and tradeflows, there's not much else going on today.
Live Chat Featured Comments
A recap of the featured comments from the MBS Live Dashboard's Live Chat feature, utilized by hundreds of industry professionals each day.

Jeff Anderson  :  "Yes, it was officially signed last week."
Dirk Postupack  :  "same here AH......there used to be 2 pages of each county of newly transfered dees......now 2 counties barely take up 1 pg......"
John Rodgers  :  "He was supposed to sign it Friday"
James Barnes  :  "Has Obama signed the bill to keep the USDA areas the same as 9/2012 yet?"
Andrew Horowitz  :  "I live right outside of Philly, ton of signs on lawns and not many of them say sold, so my guess is it is market specific shortages"
John Rodgers  :  "I got 5 purchase contracts this morning, I'd say things are moving."
Jeff Anderson  :  "The good stuff is going quick due to lack of inventory. Even the crap is getting bidding wars in some cases."
Sung Kim  :  "I would suspect that the number that makes homes move quickly is 3.75"
Jason Anker  :  "none of these numbers tells me why everyone only stays on the market for 1 day - 7 unit condo new const. sold out in 10 days, starting price was 1.1M"
Matthew Graham  :  "RTRS- US FEB PRIVATE RESIDENTIAL CONSTRUCTION LEVEL AT $303.4 BLN, HIGHEST SINCE NOV 2008 "
Matthew Graham  :  "RTRS - ISM U.S. MANUFACTURING PMI INDEX AND NEW ORDERS INDEX AT LOWEST SINCE DECEMBER "
Matthew Graham  :  "RTRS- ISM U.S. MANUFACTURING NEW ORDERS INDEX 51.4 IN MARCH VS 57.8 IN FEB "
Matthew Graham  :  "RTRS- ISM U.S. MANUFACTURING PMI INDEX 51.3 IN MARCH (CONSENSUS 54.2) VS 54.2 IN FEBRUARY "
Victor Burek  :  "ism much weaker"
Jason Anker  :  "fed law for PMI http://www.federalreserve.gov/boarddocs/supmanual/cch/hpa.pdf"
Ted Rood  :  "has to automatically be removed at 78LTV unless mortgage lates, may be eligible to come off at 80 LTV, but borrower may have to prove value hasn't decreased."
Gaius Rossini  :  "how long do borrowers have to pay a private MI company?"
Ted Rood  :  "s effective 6/1, Galius. When it does, it's FHA only."
Gaius Rossini  :  "so effective today, high LTV fha loans will carry MIPs for the whole term of the loan. What's the policy for conventional loans and private MI?"
Matthew Graham  :  "RTRS01-Apr-2013 05:58 - MARKIT U.S. MANUFACTURING SECTOR FINAL PMI FOR MARCH AT 54.6 VS FLASH READING 54.9 AND 54.3 IN FEBRUARY "
Matthew Graham  :  "GM All. Very slow overnight! As activity picks up, it's been fairly supportive so far."
Jeff Anderson  :  "I know. I'm quite happy where we are have been and where I think we'll be for 2013."
Jeff Anderson  :  "I think the housing "recovery" may stall if we run up to 9%, Hodgey. :)"
Matt Hodges  :  "all in perspective. sold loans up to 9%. "
Oliver S. Orlicki  :  "AH, not sure if I would be thrilled at 2.20."
Andrew Horowitz  :  "could be worse it could be 2.20 and even then you should be thrilled"
Oliver S. Orlicki  :  "1.88...ughh"

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