MBS MID-DAY: Stronger to Start, Weaker After Claims; Waiting For Auction

MBS Pricing Snapshot

MCLEAN, VA--(Marketwired - May 9, 2013) - Freddie Mac (OTCQB: FMCC) today released the results of its Primary Mortgage Market Survey(R) (PMMS®), showing average fixed mortgage rates reversing their recent trend and moving higher for the first time in six weeks amid April's better than expected employment report.

• 30-year fixed-rate mortgage (FRM) averaged 3.42 percent with an average 0.7 point for the week ending May 9, 2013, up from last week when it averaged 3.35 percent. Last year at this time, the 30-year FRM averaged 3.83 percent.
• 15-year FRM this week averaged 2.61 percent with an average 0.7 point, up from last week when it averaged 2.56 percent. A year ago at this time, the 15-year FRM averaged 3.05 percent.
• 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.58 percent this week with an average 0.5 point, up from last week when it averaged 2.56 percent. A year ago, the 5-year ARM averaged 2.81 percent.
• 1-year Treasury-indexed ARM averaged 2.53 percent this week with an average 0.4 point, down from last week when it averaged 2.56 percent. At this time last year, the 1-year ARM averaged 2.73 percent.
  
  Frank Nothaft, vice president and chief economist, Freddie Mac:

"Fixed mortgage rates edged up following a solid employment report for April. The economy gained 165,000 new jobs on net last month, more than the market consensus forecast and the largest monthly increase this year. On top of that, revisions added 114,000 more jobs to February and March as well. All of these factors allowed the unemployment rate to fall to 7.5 percent in April, the lowest since December 2008."

- Inventories +0.4 vs +0.3 consensus
- Sales -1.6 vs +0.1 consensus, biggest drops since 3/09
- Market Reaction: Microscopic pull-back in stocks and that's about it. It's already bounce more than half-way back. Moving on...

The U.S. Census Bureau announced today that March 2013 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $414.7 billion, down 1.6 percent (+/-0.4%) from the revised February level, but were up 1.3 percent (+/-1.1%) from the March 2012 level. The February preliminary estimate was revised downward $0.9 billion or 0.2 percent. March sales of durable goods were down 0.6 percent (+/-0.9%)* from last month, but were up 1.7 percent (+/-1.2%) from a year ago. Sales of metals and minerals, except petroleum, were down 2.5 percent from last month. Sales of nondurable goods were down 2.5 percent (+/-0.9%) from February, but were up 1.0 percent (+/-1.2%)* from last March. Sales of petroleum and petroleum products were down 7.5 percent from last month and sales of apparel, piece goods, and notions were down 5.5 percent.

Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $503.1 billion at the end of March, up 0.4 percent (+/-0.4%)* from the revised February level and were up 4.7 percent (+/-1.2%) from the March 2012 level. The February preliminary estimate was revised downward $0.1 billion. March inventories of durable goods were up 0.5 percent (+/-0.4%) from last month and were up 7.2 percent (+/-1.4%) from a year ago. Inventories of hardware, and plumbing and heating equipment and supplies were up 2.1 percent from last month and inventories of motor vehicle and motor vehicle parts and supplies were up 1.2 percent. Inventories of nondurable goods were up 0.1 percent (+/-0.5%)* from February and were up 1.2 percent (+/-1.4%)* from last March. Inventories of apparel, piece goods, and notions were up 1.7 percent from last month, while inventories of petroleum and petroleum products were down 3.4 percent

The selling wasn't especially quick or severe, but MBS are now back into negative territory on the day, even if only by 2 ticks, bringing Fannie 3.0s to 103-31. This marks a fairly steady decline from 104-05 highs earlier this morning.

Treasuries were broadly improved overnight as was volume, despite some European holiday absences. Spanish debt auctions were strong, but yields moved paradoxically higher. Weakness in peripheral sovereigns tends to connote strength for Germany and Friends, and German 10yr Bunds have few closer friends than US 10's.

The latter moved lower at its quickest pace of the night in concert with the post-Spain-Auction rally in German debt, before hitting resistance at 1.781 both at 6am and 8am New York time. Stronger-than-expected Jobless Claims data not only reinforced the resistance, but kicked off a slow motion sell-off that has now taken MBS and TSYs into negative territory.

10's are up to 1.8083, just barely into negative territory vs yesterday's newly created (by the Treasury refunding auction) batch of 10's. Fannie 3.0s. Like MBS, the decline was more 'slow and steady' following claims, and keeping a decent amount of pace with advancing equities futures which have since given way to cash trading that's almost made it back to yesterday's closing levels (to be clear, we're talking about a very small loss of 2 points overnight and a 1.5 point bounce back since 9:30.

- Claims 323k vs 335k forecast, 327k previously
- 4-week average 336.750, lowest since Nov 07
- Continued Claims 3.006 mln, lowest since May 2008

In the week ending May 4, the advance figure for seasonally adjusted initial claims was 323,000, a decrease of 4,000 from the previous week's revised figure of 327,000. The 4-week moving average was 336,750, a decrease of 6,250 from the previous week's revised average of 343,000.

The advance seasonally adjusted insured unemployment rate was 2.3 percent for the week ending April 27, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending April 27 was 3,005,000, a decrease of 27,000 from the preceding week's revised level of 3,032,000. The 4-week moving average was 3,034,250, a decrease of 24,500 from the preceding week's revised average of 3,058,750.