MBS MID-DAY: Off Morning Lows, But Struggling With Highs

By: Matthew Graham
MBS Live: MBS Morning Market Summary
Bond markets are again in short term consolidation mode (where the trading range of prices and yields grows increasingly narrow, forming what some refer to as a "triangle"), but this time the trading levels are slightly weaker than Friday's.  The movement into incrementally weaker territory came during the overnight session, and although overnight Treasury trading had bounced back a bit by the open, stronger Retail Sales data capped the gains and sent bond markets back into weaker territory.  For Treasuries, this was as simple as being pushed back into the overnight range, but for MBS, we're looking at new 7 week lows.  What were the weakest levels on Friday are now the strongest levels today.  Fannie 3.0s found support at 103-25, but remain capped by 103-01 highs and have been forming that triangular pattern of consolidation since the most recent attempt at 103-01 just before 10am.  
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
102-30 : -0-06
FNMA 3.5
105-14 : -0-04
FNMA 4.0
106-11 : -0-03
FNMA 4.5
107-06 : -0-01
GNMA 3.0
104-21 : -0-07
GNMA 3.5
107-19 : -0-04
GNMA 4.0
108-17 : -0-02
GNMA 4.5
108-07 : +0-00
FHLMC 3.0
102-17 : -0-06
FHLMC 3.5
105-06 : -0-04
FHLMC 4.0
106-03 : -0-03
FHLMC 4.5
106-11 : -0-03
Pricing as of 11:09 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.

10:20AM  :  ECON: Business Inventories Unchanged, Sales Drop Most Since June
- Inventories +0.0 vs +0.3 forecast
- Sales -1.1 vs +1.0 in Feb, biggest drop since June 2012
Market Reaction: Nothing for bond markets. Stocks blipped just lower than opening levels, but have already bounced back.

The U.S. Census Bureau announced today that the combined value of distributive trade sales and manufacturers’ shipments for March, adjusted for seasonal and trading-day differences but not for price changes, was estimated at $1,269.6 billion, down 1.1 percent (±0.1) from February 2013 and up 1.8 percent (±0.3) from March 2012.

Manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,640.9 billion, virtually unchanged (±0.1)* from February 2013 and up 4.5 percent (±0.5) from March 2012.

The total business inventories/sales ratio based on seasonally adjusted data at the end of March was 1.29. The March 2012 ratio was 1.26.
9:16AM  :  Bond Markets Extend Losses After Retail Sales. May be Finding Support.
After hitting 1.922 on Friday, 10yr yields began 'honing in' on 1.90, bouncing back and forth across the anticipated inflection point as if by design. 103-05 was the analogous center-of-gravity for MBS with prices orbiting in decreasing magnitude into the close.

Treasuries kicked off the overnight session appreciably weaker hitting 1.94 right out of the gate as Japanese markets traded "risk-on" (stock prices and bond yields higher). The European hours brought some relief, but only enough to get 10's back down to Friday's 1.90 pivot zone before early domestic trading blocked further progress ahead of Retail Sales.

The report came out stronger than expected, with the primary drag being gasoline sales. This was expected to be the case, but not quite to the extent seen. Notably, headline sales were able to turn positive (+0.1) whereas markets had baked in a negative headline (-0.3).

Bond markets moved back into weaker territory after the report, ominously reinforcing 1.90 as a resistance level (in other words, 1.90% was keeping it's options open heading into Friday's close, threatened to become a "floor" as yields moved higher overnight and now pours another layer of cement after stronger data. It's not a floor in the sense that we should EXPECT yields to bounce when/if they return, but it would simply "mean something" if broken. The more we bounce there, the more it means. Given what we've seen so far, the current significance would be moderate-to-high, but better technical lines-in-the-sand could emerge before then).

10's are currently hovering between 1.93-1.94, but have struggled to move much higher. MBS prices moved down to 103-25 and are experiencing similar support there. Equities futures aren't yet back to Friday's closing levels but are at overnight highs ahead of the cash open at 9:30am.

There's no more top tier data this morning, but Business Inventories are out at 10am, expected to rise 0.3 pct.
8:39AM  :  ECON: Retail Sales Stronger Than Expected
- Sales +0.1 vs -0.3 forecast, -0.5 in March
- Excluding Autos -0.1, as expected
- Excluding Gasoline +0.6 vs 0.0 previously
- Gasoline -4.7 pct, most since Dec 2008
- Market reaction: further selling for bond markets, but seeing hesitation moving through overnight lows. Muted reaction in equities.

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for April, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $419.0 billion, an increase of 0.1 percent (±0.3%)* from the previous month, and 3.7 percent (±0.7%) above April 2012. Total sales for the February through April 2013 period were up 3.7 percent (±0.5%) from the same period a year ago. The February to March 2013 percent change was revised from -0.4 percent (±0.5%)* to -0.5 percent (±0.2%).

Retail trade sales were virtually unchanged (±0.5%)* from March 2013 and 3.6 percent (±0.7%) above last year. Nonstore retailers were up 15.4 percent (±2.0) from April 2012 and auto and other motor vehicle dealers were up 8.8 percent (±2.0) 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.

Oliver S. Orlicki  :  "lovely way to start the week"
Mike Drews  :  "well there's our 1.94"
Matthew Graham  :  "RTRS- US APRIL EX-GASOLINE SALES +0.7 PCT VS MARCH -0.1 PCT "
Matthew Graham  :  "RTRS- US APRIL RETAIL SALES +0.1 PCT (CONSENSUS -0.3 PCT) VS MARCH -0.5 PCT (PREV -0.4 PCT) "
Matthew Graham  :  "1.9-ish yeah, not looking so friendly so far this AM. In terms of Bbands, we'd definitely be looking for a pull back some time soon, but the bigger reversal signal wouldn't be until we revisited the upper band (without breaking) and formed the "M" top. Kinda neat when it happens, because you can impress your friends and amuse your enemies by pointing it out, but like anything else, never a sure thing."
Sung Kim  :  "i would think that since we hit 1.94 over night and the general direction appears to be up, we are headed back, but of course i dont trade - i guess this is MH's pivot? dunno."
John Tassios  :  "GM All / This is a clip from Bloomberg Article late last night / " U.S. 10-year yields are above the so-called upper Bollinger-band level of 1.88 percent, suggesting the increase in rates is about to end. The bands gauge volatility by plotting standard deviations above and below a moving average. Analysts use them to determine a probable range for a rate or security. " / Source - Bloomberg News "
Christopher Stevens  :  "Good read on what Hilsenrath's article may do to markets. http://www.businessinsider.com/wsj-story-on-fed-thinking-about-winding-down-qe-2013-5?utm_source=dlvr.it&utm_medium=social&utm_campaign=moneygame"

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