MBS MID-DAY: Stronger Territory Despite Stronger Data

By: Matthew Graham
MBS Live: MBS Morning Market Summary
After a volatile overnight session with heavy losses in Japanese equities facilitating lower global stock prices and bond yields, US Treasuries began bouncing back on the approach to the domestic session.  MBS began the day several ticks improved.  Moderately stronger-than-expected data was just the ticket for primary dealers getting ready to submit offers for Fed consideration at the 10:15-11:00am scheduled buying operation in the 10yr maturity range.  Bond markets rallied from 9am to 10am and have flattened out since then.   For Treasuries, that's amounted to bouncing along the recent low range near 2.18 while Fannie 3.5s are up 6 ticks at 103-01.  Gains could be limited ahead of the 30yr Bond auction at 1pm, with any "restrained momentum" standing a good chance of being given the green light afterward. 
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
99-32 : +0-07
FNMA 3.5
103-01 : +0-06
FNMA 4.0
104-31 : +0-04
FNMA 4.5
106-13 : +0-05
GNMA 3.0
101-15 : +0-07
GNMA 3.5
104-15 : +0-06
GNMA 4.0
105-30 : +0-10
GNMA 4.5
106-12 : +0-05
FHLMC 3.0
99-21 : +0-07
FHLMC 3.5
102-28 : +0-07
FHLMC 4.0
104-28 : +0-04
FHLMC 4.5
105-16 : +0-04
Pricing as of 11:06 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.

9:20AM  :  Measured Weakness Following Data; MBS Near Unchanged
One needn't look far this morning to find news crediting Japan's overnight sell-off with US Treasuries' overnight strength. Improvements in 10's bordered on obligatory though, with yields clawing around in roughly similar territory to the lows of the past 3 sessions, between 2.16 and 2.18, and those were just falling out of the frame by the time the domestic session began. Bottom line, Japan continues to have an impact, but not to set the tone (something that looked more possible until 5/22 FOMC Minutes when Japanese markets did a brutally fast 180).

With that reality of domestic considerations moving domestic trading levels more than anything else, it's no surprise to see measured weakness following generally stronger employment and spending data this morning. Jobless Claims beat consensus by just over 10k, and Retail Sales were 0.2 pct stronger than expected (though 'as expected' at the so-called "core" level that strips out more volatile components).

In light of those moderate beats, the weakness has been moderate, and can even be viewed as a continuation of a trend in place since yields bottomed out in the 4am hour. 10's are up to 2.212 currently and Fannie 3.5s are 2 ticks stronger at 102-29, off earlier highs of 103-00. Only second tier data remains in the AM hours with Business Inventories at 10am. The bigger chance of volatility is at 1pm with the 30yr Bond auction.
8:48AM  :  ECON: Import/Export Prices Both Lower Than Expected
- Import Prices -0.6 vs 0.0 forecast
- Export Prices -0.5 vs 0.0 forecast

U.S. import prices decreased for the third consecutive month in May, falling 0.6 percent, after declines of 0.7 percent in April and 0.1 percent in March. The 1.4 percent drop in import prices over the past three months followed a 1.4 percent increase for the first two months of 2013. Overall import prices fell 1.9 percent for the year ended in May, and have not recorded a 12-month advance since the index rose 0.8 percent between April 2011 and April 2012.

Prices for U.S. exports decreased 0.5 percent in May, driven by lower nonagricultural prices which more than offset higher agricultural prices. The May decrease in export prices marked the first time the index has declined for at least three consecutive months since the end of 2008. The price index for exports fell 0.9 percent over the past year, led by falling nonagricultural prices. In contrast, agricultural prices rose over the same period.
8:44AM  :  ECON: Jobless Claims Lower Than Expected
- Claims 334k vs 345k forecast
- 4-wk average 345,250 vs 352,500
- Continued claims 2.973 vs 2.975 mln

In the week ending June 8, the advance figure for seasonally adjusted initial claims was 334,000, a decrease of 12,000 from the previous week's unrevised figure of 346,000. The 4-week moving average was 345,250, a decrease of 7,250 from the previous week's unrevised average of 352,500.

The advance seasonally adjusted insured unemployment rate was 2.3 percent for the week ending June 1, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending June 1 was 2,973,000, an increase of 2,000 from the preceding week's revised level of 2,971,000. The 4-week moving average was 2,967,250, a decrease of 12,750 from the preceding week's revised average of 2,980,000.
8:40AM  :  ECON: Retail Sales Slightly Better, Core as Expected
- Headline +0.6 vs +0.4
- Excluding autos, +0.3 vs +0.3
- Excluding autos/gas/building material +0.3 vs +0.3

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for May, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $421.1 billion, an increase of 0.6 percent (±0.5%) from the previous month, and 4.3 percent (±0.7%) above May 2012. Total sales for the March through May 2013 period were up 3.7 percent (±0.5%) from the same period a year ago. The March to April 2013 percent change was unrevised from 0.1 percent (±0.3%)*.

Retail trade sales were up 0.7 percent (±0.5%) from April 2013 and 4.3 percent (±0.7%) above last year. Nonstore retailers were up 11.3 percent (±2.1%) from May 2012 and building material and garden equipment and supplies dealers were up 10.1 percent (±4.0%) 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.

Matthew Graham  :  "2.5 hours and change before 30yr auction. Stock lever is well-resisted so far. That's positive, but potentially a factor of Fed buying operation in 10's right now. 11:03am, could be informative, but I'd probably give it until 11:10-ish before concluding anything about the POMO. Sometimes (maybe even "more often than not") it jukes in one direction semi-convincingly only to return to the previous range."
Michael Gillani  :  "We bounced right off of it, any chance we can hope to push back down there?"
Michael Gillani  :  "I saw 2.17 for a quick second"
Christopher Stevens  :  "it's the little things that excite me now. If it could just hold there."
Christopher Stevens  :  "2.18!"
James Barnes  :  "9+primary FNMA"
Dan Clifton  :  "4 for the standard program, 10 on the multiple property program."
Michael Gannon  :  "does anyone know how many financed properties a borrower can have on a conventional loan where borrower is buying or refinancing an investment property"
Matthew Graham  :  "RTRS- U.S. APRIL BUSINESS SALES -0.1 PCT VS MARCH -1.2 PCT (PREV -1.1 PCT) "
Matthew Graham  :  "RTRS- U.S. APRIL BUSINESS INVENTORIES +0.3 PCT (CONSENSUS +0.3 PCT) VS MARCH -0.1 PCT (PREV UNCHANGED) "
FPH  :  "ok, great. thanks. FHA is not counted beginning at day 1 correct?"
Matt Hodges  :  "counted against"
FPH  :  "what if under 12 months? say 6-9 months?"
Brian OMalley  :  "RM: FNMA requirement"
Matt Hodges  :  "after 12 months of payments - 12 months of bank statements proving child paid - no"
FPH  :  "If a borrower co-signs for a childs FHA loan as a non-occupant co-borrower, will that loan becounted against their personal DTI if they seek FNMA financing?"
Roger Moore  :  "does anybody know if fnma limits high balance ARMs to 75% or is that an investor overlay? can't seem to find a straight answer from my lenders"
Hugh W. Page  :  "I think the Fed is perfectly comfortable with all this tapering talk as it helps the market get comfortable with it. Personally I don't think they can scale back anytime soon. "
Matthew Graham  :  "RTRS- U.S. MAY EXPORT PRICES -0.5 PCT (CONSENSUS UNCHANGED) VS APRIL -0.7 PCT "
Matthew Graham  :  "RTRS- U.S. MAY IMPORT PRICES -0.6 PCT (CONSENSUS UNCHANGED) VS APRIL -0.7 PCT (PREV -0.5 PCT) "
Matthew Graham  :  "not seeing any damning evidence here."
Christopher Stevens  :  "Looks like we stay in that bearish trend for a few more days. "
Matthew Graham  :  "RTRS- US JOBLESS CLAIMS 4-WK AVG FELL TO 345,250 JUNE 8 WEEK FROM 352,500 PRIOR WEEK "
Matthew Graham  :  "RTRS- US JOBLESS CLAIMS FELL TO 334,000 JUNE 8 WEEK (CONSENSUS 345,000) FROM 346,000 PRIOR WEEK "
Matthew Graham  :  "RTRS- US MAY RETAIL SALES EX-AUTOS/GASOLINE +0.3 PCT VS APRIL +0.5 PCT (PREV +0.2 PCT) "
Matthew Graham  :  "RTRS- US MAY RETAIL SALES EX-AUTOS +0.3 PCT (CONS +0.3 PCT) VS APRIL UNCHANGED (PREV -0.2 PCT) "
Matthew Graham  :  "RTRS- US MAY RETAIL SALES +0.6 PCT (CONSENSUS +0.4 PCT) VS APRIL +0.1 PCT (PREV +0.1 PCT) "
philip mancuso  :  "You have to think that if one was a buying yesterday afternoon at 103-3 103-5 even, after last nights move how do we stall at 103. We've seen this happen frequently in the last month or so. The inability to break through under "better conditions" then the previous morning or days high."
Oliver S. Orlicki  :  "nikkei down over 6% and we are barely green"
Oliver S. Orlicki  :  "i agree. Shocked we are not doing much better. Futures have been improving all morning"
philip mancuso  :  "That said, up 5 isn't that stunning right now. With such a big move in German bonds, gotta be a little concerned we really aren't there"
philip mancuso  :  "Jt, gotta feel like we'll extend here. I squared my position and then a little late yesterday, calling a bottom literally at 102-25. That looks like a good call at the moment. Regret not totally following through and going longer"
John Tassios  :  "7:00 am / Bonds off their highs, but still doing well / the Yen is 94.3 vs. Dollar, a huge move again"

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