MBS MID-DAY: Eerily Calm Start to FOMC Week

By: Matthew Graham
MBS Live: MBS Morning Market Summary
So far this week, we're being treated to the "all things being equal" approach to Wednesday's tremendously important FOMC Events.  In the few days leading up to any major market mover, it's fair to expect lighter volume, narrower trading ranges, and reasonably sideways price movement, "all things being equal."  The qualifying phrase is added because all things aren't necessarily always equal in these cases (as we've seen several times in the run up to NFP data where Wednesday and Thursday cause big lead-offs).  It has been the case today though, and even in the overnight session, Treasuries were already showing a desire to remain flat despite sharper movement in equities.  Empire State Manufacturing data was a relative non-event, but the NAHB Housing Market Index was a big upside surprise.  It put some pressure on bond markets, but MBS managed to bounce back to unchanged levels after falling only 2 ticks. 
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
100-16 : +0-00
FNMA 3.5
103-17 : +0-01
FNMA 4.0
105-11 : -0-01
FNMA 4.5
106-24 : +0-01
GNMA 3.0
101-30 : -0-01
GNMA 3.5
104-29 : -0-04
GNMA 4.0
106-08 : -0-01
GNMA 4.5
106-23 : -0-02
FHLMC 3.0
100-06 : +0-01
FHLMC 3.5
103-12 : +0-01
FHLMC 4.0
105-07 : -0-01
FHLMC 4.5
105-32 : +0-04
Pricing as of 11:02 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.

10:19AM  :  Some Weakness Following NAHB Data
Treasury yields were heading into 10am NAHB data at 2.13 (10yr) and are now up to 2.1475. Fannie 3.5 MBS fell 2 ticks to 103-15. This moderate weakness is in response to a much stronger than expected Housing Market Index from the National Association of Homebuilders (NAHB). The main index moved over 50 (anything over 50 is positive territory) for the first time since 2006.

The report isn't typically a reliable market mover, but can have this sort of impact when the headline is this far from consensus (52 vs 45). So far, we're still inside the lows of this morning's trading range in MBS and wouldn't be expecting negative reprice risk unless we fell several more ticks.

To be sure, this is still a risk given the technical break higher in 10yr yields (had been holding at 2.145 and just moved up to 2.15). We may not have seen the move play out in full yet.
10:08AM  :  ECON: Homebuilder Index Turns Positive For First Time Since 2006
- Headline Index at 52 vs 45 consensus, 44, previously
- Current Single-Fam Sales 56 vs 48 previously
- Prospective Buyers 40 vs 33 previously
- 6-mo Outlook 61 vs 52 previously

Market Reaction: Treasury yields spiking moderately. Only 1-2 ticks weaker in MBS so far.

Builder confidence in the market for newly-built single-family homes hit a significant milestone in June, surging eight points to a reading of 52 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. Any reading over 50 indicates that more builders view sales conditions as good than poor.

“This is the first time the HMI has been above 50 since April 2006, and surpassing this important benchmark reflects the fact that builders are seeing better market conditions as demand for new homes increases,” said NAHB Chairman Rick Judson, a home builder and developer from Charlotte, N.C. “With the low inventory of existing homes, an increasing number of buyers are gravitating toward new homes.”

The eight-point jump in the index was the biggest one-month gain since August and September of 2002, when the HMI recorded a similar increase of eight points.

“Builders are experiencing some relief in the headwinds that are holding back a more robust recovery,” said NAHB Chief Economist David Crowe. “Today’s report is consistent with our forecast for a 29 percent increase in total housing starts this year, which would mark the first time since 2007 that starts have topped the 1 million mark.”
9:00AM  :  Bond Markets Hovering Near Unchanged Territory
10yr Treasuries had a relatively docile night in terms of volume and volatility--both showing up in less-than-average amounts. Indeed Friday already spoke to the likelihood that traders were hunkered down for the upcoming FOMC Events with similarly moderate, sideways movement in similarly light volume.

Asian hours saw yields open just slightly higher, but they held perfectly flat despite advancing equities and Dollar/Yen. The European session had a more noticeable effect, with the Bundesbank saying that Germany's economic growth is likely to fall over the summer. This ushered Bund yields quickly lower, and helped Treasuries facilitate a move to their lowest yields of the morning right as the domestic session began.

10's hit 8am at 2.112, whereupon traders with short term bets on lower yields sold to book profits. Yields rose to 2.14 right at the 8:30am release of the Empire State Manufacturing data. The stronger-than-expected headline stood the chance of motivating more weakness, but the internal components of the report were lackluster at best. This offset any bearish bias coming out of the report and suggested more of a sideways reaction.

Since the report, that's more or less what we've seen with 10's staying between 2.14 and 2.125, currently 2.131. Fannie 3.0s are 1 tick higher on the day at 103-17 and haven't strayed more than 2 ticks lower than that. Equities futures are off their overnight highs but appreciably higher vs Friday's close (over 12 points in S&P Futures). The only remaining data this morning is NAHB's Housing Market Index at 10am
8:36AM  :  ECON: Empire State Manufacturing Stronger Overall, but Weak Internals
- Headline index +7.84 vs 0.0 forecast
- Employment Index 0.0 vs +5.68 previously
- New Orders -6.69 vs -1.17 previously

The June 2013 Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved modestly. The general business conditions index—the most comprehensive of the survey's measures—rose nine points to 7.8. Nevertheless, most other indicators in the survey fell. The new orders index slipped six points to -6.7, the shipments index fell twelve points to -11.8, and the unfilled orders index fell eight points to -14.5. The prices paid index held steady at 21.0, while the prices received index rose seven points to 11.3. Labor market conditions worsened, with the index for number of employees dropping to zero and the average workweek index retreating ten points to -11.3. Continuing the trend seen in the past few months, indexes for the six-month outlook declined, suggesting that optimism about future conditions was weakening further.

In a series of supplementary survey questions, manufacturers were asked to look back and assess the short-term and medium-term effects of Superstorm Sandy on their business. As in last November’s survey (conducted immediately after the storm), the vast majority of upstate firms said that they were essentially unaffected by the storm. However, firms in New York City, Long Island, and the Lower Hudson Valley reported that it took an average of more than two weeks after the storm for business to get back to normal, and more than a third of these firms said that the storm had adversely affected their overall business revenue during the seven months since Sandy.
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  :  "If overnight and AM action is any indication, yes MG2, that seems like the theme. Volume's pretty low though, so if any consensus builds to take rates higher (or lower, I guess), it would have an easier time moving markets than if volume was heavy and balanced this AM."
Michael Gillani  :  "Obviously the equities markets are thinking otherwise"
Michael Gillani  :  "In MBS and Bonds that is"
Michael Gillani  :  "So we should expect probably more or less sideways trading today and tomorrow with the exception of any tapebombs?"
Matthew Graham  :  "Big swings are pretty typical in Empire State, and the forecasts run an increased risk of being that far off. http://screencast.com/t/M541333O4vMK"
Oliver S. Orlicki  :  "umm. someone had that estimate a little off"
Matthew Graham  :  "RTRS- NY FED'S EMPIRE STATE NEW ORDERS INDEX -6.69 IN JUNE VS -1.17 IN MAY "
Matthew Graham  :  "RTRS- NY FED'S EMPIRE STATE EMPLOYMENT INDEX AT 0.00 IN JUNE VS +5.68 IN MAY "
Matthew Graham  :  "RTRS - NY FED'S EMPIRE STATE INDEX +7.84 IN JUNE (CONSENSUS 0.0) VS -1.43 IN MAY "

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