MBS MID-DAY: Overnight Session Weak Data Fuel Bond Market Rally

MBS Pricing Snapshot

- Inventories +0.1 vs +0.4 Consensus
- Smallest gain since June 2012
- Sales +1.2 vs -0.1 previously

The U.S. Census Bureau announced today that the combined value of distributive trade sales and manufacturers’ shipments for February, adjusted for seasonal and trading-day differences but not for price changes, was estimated at $1,286.7 billion, up 1.2 percent (±0.2) from January 2013 and up 3.7 percent (±0.4) from February 2012.

Manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,642.1 billion, up 0.1 percent (±0.1)* from January 2013 and up 4.9 percent (±0.4) from February 2012.

The total business inventories/sales ratio based on seasonally adjusted data at the end of February was 1.28. The February 2012 ratio was 1.26.

- Sentiment 72.3 vs 78.5 Consensus
- Current Conditions 84.8 vs 89.5
- Expectations 64.2 vs 70.0
- Sentiment and Current Conditions Lowest Since July
- Market Reaction: helped stem the tide of minor selling pressure, but has likewise failed to prompt new yield lows or price highs in bond markets.
(Reuters) - U.S. consumer sentiment tumbled to a nine-month low in April, with Americans especially gloomy about the long-term health of the economy, a survey released on Friday showed.

The Thomson Reuters/University of Michigan's preliminary reading on the overall index of consumer sentiment fell to 72.3 in April, a level last seen in July, 2012, and below economists' forecasts of 78.5. The index stood at 78.6 last month.

The barometer of current economic conditions fell to 84.8 this month from 90.7, while the gauge of consumer expectations hit 64.2, down from 70.8.

Americans' long-term outlook was even more gloomy, with many anticipating a higher unemployment rate and lower after-tax income in the year ahead, Richard Curtin, the survey's director, said in a statement.

But more immediate plans for buying homes and vehicles were positive, Curtin said, while rising home and stock values were expected to support spending this year.

After a generally stronger overnight session for bond markets, a weaker-than-expected Retail Sales figure added to the positivity. The overnight gains were roughly equal in size to those inspired by the domestic data, and were driven by a broad-scale risk-off move (German debt yields lower, peripheral debt yields higher, US stock futures and debt yields lower). Reasons may include a technical reversal in the recent 'risk-on' trend, and reignited Cyprus concerns that have called the EU's bailout contribution into question if Cyprus can't come up with another €6 bln.

That was good enough to drop 10yr yields from roughly 1.79 to 1.77 in the first hour of European trading and 1.76 by 8am. MBS opened up 4 ticks from yesterday's close. Both MBS and Treasuries rallied following Retail Sales, but fizzled sideways after only moderate gains.

That sideways slide has given way to the smallest detectable amount of weakness now as stock markets have improved in the first 15 minutes of cash trading. 10's rose from 1.745 to 1.757 and MBS came off 104-00 highs to 103-29 currently. Consumer Sentiment is coming up in just under 10 minutes.

- PPI -0.6 pct vs -0.2 pct Consensus
- Core PPI +0.2 vs +0.2 Consensus
- Market Reaction: PPI and CPI are reports that markets USED TO care about. They may again some day, but woefully inconsequential for now.

The Producer Price Index for finished goods decreased 0.6 percent in March, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Finished goods prices rose 0.7 percent in February and 0.2 percent in January. At the earlier stages of processing, prices received by manufacturers of intermediate goods fell 0.9 percent in March, and the crude goods index declined 2.5 percent. On an unadjusted basis, prices for finished goods increased 1.1 percent for the 12 months ended March 2013, the smallest year-over-year advance since a 0.5- percent rise in July 2012.

- Retails Sales -0.4 vs 0.0 Consensus
- Core Retail Sales +0.2 vs +0.2 Consensus
- Market Reaction: bond markets rallied from already stronger levels

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for March, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $418.3 billion, a decrease of 0.4 percent (±0.5%)* from the previous month, but 2.8 percent (±0.7%) above March 2012. Total sales for the January through March 2013 period were up 3.7 percent (±0.5%) from the same period a year ago. The January to February 2013 percent change was revised from +1.1 percent (±0.5%) to +1.0 percent (±0.2%).

Retail trade sales were down 0.6 percent (±0.5%) from February 2013, but 2.6 percent (±0.8%) above last year. Nonstore retailers were up 13.5 percent (±2.3%) from March 2012 and auto and other motor vehicle dealers were up 7.4 percent (±2.1%) from last year.

- Retails Sales -0.4 vs 0.0 Consensus
- Core Retail Sales +0.2 vs +0.2 Consensus
- Market Reaction: bond markets rallied from already stronger levels

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for March, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $418.3 billion, a decrease of 0.4 percent (±0.5%)* from the previous month, but 2.8 percent (±0.7%) above March 2012. Total sales for the January through March 2013 period were up 3.7 percent (±0.5%) from the same period a year ago. The January to February 2013 percent change was revised from +1.1 percent (±0.5%) to +1.0 percent (±0.2%).

Retail trade sales were down 0.6 percent (±0.5%) from February 2013, but 2.6 percent (±0.8%) above last year. Nonstore retailers were up 13.5 percent (±2.3%) from March 2012 and auto and other motor vehicle dealers were up 7.4 percent (±2.1%) from last year.