MBS MID-DAY: Yesterday's FOMC Gains Erased

MBS Pricing Snapshot

- PMI at 55.4 vs 52.0 forecast, 50.9 in June
- New Orders 58.3 vs 51.9 in June
- Employment Index 54.4 vs 48.7 in June
- Prices Paid 49.0 vs 54.2 forecast, 52.5 in June
- PMI and New Orders Highest since mid 2011
- Employment Highest since June 2012

Market Reaction: This was outside the boundaries of an average "beat" or "miss." The movement was quick in response. Yesterday's post-FOMC gains are now erased.

Manufacturing expanded in July as the PMI™ registered 55.4 percent, an increase of 4.5 percentage points when compared to June's reading of 50.9 percent. July's reading of 55.4 percent reflects the sixth month of growth, and the highest overall PMI™ reading, in the first seven months of 2013. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI™ in excess of 42.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the July PMI™ indicates growth for the 50th consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the second consecutive month. Holcomb stated, "The past relationship between the PMI™ and the overall economy indicates that the average PMI™ for January through July (52.1 percent) corresponds to a 3.1 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI™ for July (55.4 percent) is annualized, it corresponds to a 4.1 percent increase in real GDP annually."

10's up to 2.68, Fannie 3.5s down 18 ticks to 100-12, Fannie 4.0s down 13 ticks to 103-19. More to follow...

10yr yields held an exceptionally narrow 2.586-2.61 range overnight with fairly light volume. Stronger than expected Jobless Claims prompted weakness in bond markets and that's about all that's going on this morning so far! ECB's Draghi is in the middle of his press conference Q&A after the ECB held rates steady as-expected, but Treasuries and domestic markets are doing more to lead European markets and Bunds (the most similar European government debt issuance to US Treasuries).

10's are now up to 2.6353. MBS opened flat and are now down 13 ticks in Fannie 3.5s to 100-17 and 9 ticks in Fannie 4.0s at 103-23.

- Claims 326k vs 345k f'cast, 345k previous
- Lowest since Jan 2008
- Continued Claims 2.951 mln vs 2.994 mln f'cast

- Market Reaction: MBS off several more ticks from already slightly weaker morning. 10's right back to testing to 2.62's.

In the week ending July 27, the advance figure for seasonally adjusted initial claims was 326,000, a decrease of 19,000 from the previous week's revised figure of 345,000. The 4-week moving average was 341,250, a decrease of 4,500 from the previous week's revised average of 345,750. The advance seasonally adjusted insured unemployment rate was 2.3 percent for the week ending July 20, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending July 20 was 2,951,000, a decrease of 52,000 from the preceding week's revised level of 3,003,000. The 4-week moving average was 3,026,000, a decrease of 500 from the preceding week's revised average of 3,026,500.