MBS MID-DAY: Steady Near Highs Ahead of 30yr Auction

MBS Pricing Snapshot

Treasury yields were lower during Asian hours despite stronger than expected Trade data from China. The bulk of the move lower followed a firming of the Yen and drop in the Nikkei after the Bank of Japan announced they would hold policy steady. 10's accelerated into their best levels of the night on reports of an Earthquake in Japan, but quickly backed away as the quake proved to be far tinier than initial speculation.

Momentum swung the other way in the European session and yields moved back to 2.615--the same place they began the night.

10's crossed into the domestic session just slightly higher than yesterday's latest levels and MBS were essentially unchanged. Jobless Claims data--while not weaker than expected--wasn't strong enough to sway the "September vs December" argument in either direction regarding Fed tapering. The surprise uptick in Continued Claims added to a bond-bullish response.

Since then, a small amount of positive momentum combined with what continue to be very thin trading conditions to effect a 3bp drop in 10yr yields, a 4 tick gain for Fannie 3.5s and not much traction in Fannie 4.0s.

The only significant event left today is the 30yr Auction at 1pm. Tonight is the Class A 48-hour day for MBS ("the roll") meaning that prices will drop 8-12 ticks just after the close as August coupons are retired and September coupons become the new representative of the most current prices (only affects Fannie and Freddie 30yr MBS today).

- Claims 333k vs 336k consensus
- 4wk avg to 335k, lowest since Nov 2007
- Continued Claims rose to 3.018 vs 2.950 consensus

- Market Reaction: about 1bp lower in 10yr yields so far and MBS have added a tick

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.