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

By: Matthew Graham
MBS Live: MBS Morning Market Summary
Bond markets began the day in slightly better territory after the European session traded "risk-off."  German debt rallied, peripheral debt and equities weakened as the risk rally of the past week finally turned a corner.  There was buzz about hiccups in the Cyprus bailout process, but the move was certainly technical as well.  Bond markets were stronger after Retail sales, but met resistance as equities markets came online.  The stock lever was a bit of a drag on bond markets heading into later morning data, and the opposite was true until just a few minutes ago. Weaker-than-expected Consumer Sentiment data confirmed a bounce off the highs for stocks, which then flushed lower over the next hour. Bond markets resisted the move at first, but 10's eventually broke their previous low at 1.736 and moved as low as 1.726 as stocks continued moderate selling. MBS generally followed this same pattern with prices of Fannie 3.0s encountering plenty of resistance at 104-00, but ultimately breaking above to 104-02 in concert with the broader moves.
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
104-01 : +0-11
FNMA 3.5
106-03 : +0-06
FNMA 4.0
106-25 : +0-04
FNMA 4.5
107-19 : +0-05
GNMA 3.0
105-21 : +0-10
GNMA 3.5
108-15 : +0-06
GNMA 4.0
109-16 : +0-05
GNMA 4.5
109-04 : +0-03
FHLMC 3.0
103-18 : +0-09
FHLMC 3.5
105-26 : +0-06
FHLMC 4.0
106-17 : +0-06
FHLMC 4.5
106-27 : +0-03
Pricing as of 11:04 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.

10:17AM  :  ECON: Business Inventories Rise Much Less Than Expected
- 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.
10:13AM  :  ECON: Consumer Sentiment Hits Nine Month Low
- 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.
9:48AM  :  Stock Lever A Slight Drag On Bond Market Rally
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.
9:02AM  :  ECON: Producer Prices Lower, Core in Line With Expectations
- 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.
8:52AM  :  Corrected: Retail Sales WEAKER Than Expected
- 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.
8:47AM  :  (Correction) ECON: Retail Sales Weaker Than Expected
- 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.
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.

Matthew Graham  :  "RTRS - CONSUMER SENTIMENT LOWEST SINCE MATCHING 72.3 IN JULY "
Matthew Graham  :  "RTRS - CURRENT CONDITIONS INDEX PRELIM APRIL 84.8 (CONSENSUS 89.5) VS FINAL MARCH 90.7 "
Matthew Graham  :  "THOMSON REUTERS/U. OF MICH US CONSUMER SENTIMENT PRELIMINARY APRIL 72.3 (CONSENSUS 78.5) VS FINAL MARCH 78.6 "
Christopher Stevens  :  "pg. 28 of the Small Entity Compliance Guide CFPB released yesterday."
Christopher Stevens  :  "QM has a transitional period where there is no hard DTI if loan is eligible for purchase or guarantee by Fannie or Freddie. This temporary provision expires on the date teh GSE's exit conservatorship or January 10, 2021, whichever occurs first."
Jason Anker  :  "anyone yet understand the dif between ATR & QM mortgages? QM 43% hard stop, ATR not?"
Ira Selwin  :  "I dont think that date was arbitrary also. The "harp" program started in April of 2009, so they made it effective with new loans before that date."
Matthew Graham  :  "RTRS - U.S. MARCH PPI EXFOOD/ENERGY +0.2 PCT (CONS +0.2 PCT) VS FEB +0.2 PCT "
Matthew Graham  :  "RTRS- U.S. MARCH PPI -0.6 PCT (CONSENSUS -0.2 PCT), VS FEB +0.7 PCT "
Matthew Graham  :  "RTRS- US MARCH RETAIL SALES EX-AUTOS/GAS/BUILDING MATERIALS -0.2 PCT (CONS +0.2 PCT) VS FEB +0.3 PCT (PREV +0.4 PCT) "
Matthew Graham  :  "RTRS - US MARCH RETAIL SALES EX-AUTOS -0.4 PCT (CONS 0.0 PCT) VS FEB 1.0 PCT "
Matthew Graham  :  "RTRS - US MARCH RETAIL SALES -0.4 PCT (CONSENSUS 0.0 PCT) VS FEB +1.0 PCT (PREV +1.1 PCT) "
John Tassios  :  "There is an estimated 2 mil to 4 mil homes still out there that have loans on them pre-2009 but are not guranteed by Fannie, Freddie or FHA ( or USDA ) / I have quite a few customers in that category, Can't refi them because of low appraisal values / they can't do HARP either because they don't have any GSE gurantee / if there is a HARP 3 it would target those homes that are eligible for HARP but there is no guranteed on them currently from on of the GSE's"
Ken Crute  :  "if some refied post 5/09 wouldn't the assumption be that they already refied into HARP "
Andy Pada  :  "my source did advise that FHFA is looking to Congress to "modify" current HARP eligibility. But I'm thinking that if DeMarco leaves, the new Director may take a more proactive approach."
Andy Pada  :  ""we don't have guidelines for HARP" or "we don't participate in HARP.""
Oliver S. Orlicki  :  "i have several clients I am working with right now who have harp eligible loans and were told by their servicer they could not refinance."
Andy Pada  :  "I'm sure we can figure out the #s. According to FHFA, 2.2Million loans were refinanced under HARP. So the question is, how many were eligible? 3Million, 4Million, 5Million?"
Ken Crute  :  "hard to believe with all the refis we have done that not everyone that is harp eligible has not refied yet "
Andy Pada  :  "Heard that despite the extension of HARP through Dec. 2015, there will be NO expansion of eligibility."
Oliver S. Orlicki  :  "Good green morning. Nice start to this Friday."

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