MBS MID-DAY: Slightly Positive Territory, but no Bullish Stampede

MBS Pricing Snapshot

McLEAN, VA -- Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey, showing average fixed mortgage rates following bond yields higher, and reaching new highs for the year, with the expectant release of the Fed’s comments around taper timing of its bond purchase program.

30-year fixed-rate mortgage (FRM) averaged 4.58 percent with an average 0.8 point for the week ending August 22, 2013, up from last week when it averaged 4.40 percent. A year ago at this time, the 30-year FRM averaged 3.66 percent.

15-year FRM this week averaged 3.60 percent with an average 0.7 point, up from last week when it averaged 3.44 percent. A year ago at this time, the 15-year FRM averaged 2.89 percent.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.21 percent this week with an average 0.5 point, down from last week when it averaged 3.23 percent. A year ago, the 5-year ARM averaged 2.80 percent.

1-year Treasury-indexed ARM averaged 2.67 percent this week with an average 0.5 point, unchanged from last week. At this time last year, the 1-year ARM averaged 2.66 percent.

“Fixed mortgage rates continued to follow bond yields higher leading up to the August 21st release of the Federal Reserve monetary policy committee’s minutes for July. In its July 30th and 31st meetings, the committee members were broadly comfortable with a plan to start reducing its bond purchases later this year, although a few emphasized the importance of being patient." - Frank Nothaft, Vice President and Chief Economist, Freddie Mac

Treasuries rose to their highest levels since July 2011 overnight as Asian and European markets extended yesterday's post-FOMC sell-off. That's not an uncommon occurrence when the US trading session gets news late in the day (after Asia and Europe are done for the day), and not necessarily indicative of an ongoing trend.

That's being born out today with 10yr yields returning to the high 2.8's after slightly higher Jobless Claims. They had been as high as 2.936 overnight and stood at 2.91 before the claims data. They're currently challenging the lows of the day at 2.886 (failing so far).

For their part, MBS have tread a similar path since 8am, coming into the domestic session at their weakest levels in over 2 years but improving after Claims. Fannie 4.0s started at 101-28 and are up to 102-04 currently. This mirrors Treasuries in that MBS are just a step away from 102-05 highs and have bounced around this narrow range several times without breaking any lower (yet).

There is no other significant scheduled data for the day, but snippets of Fed-speak may trickle in from Jackson hole--though it's hard to imagine what new information would come to light considering their message hasn't much changed for 3 months today.

- Manufacturing PMI 53.9 vs 53.7 previously
- Output 53.4 vs 54.8
- Orders 56.5 vs 55.5
- PMI highest since March
- Orders highest since January

The Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™)1signalled the strongest improvement in manufacturing business conditions in five months during August. The flash PMI index, which is based on approximately 85% of usual monthly replies, was up slightly from July’s 53.7 to 53.9, and suggested a moderate expansion of the manufacturing sector.

Firms received a larger volume of new orders in August, with a number of companies linking this to greater demand and new client wins. Moreover, the rate of growth was strong and, having accelerated for the fourth month running, the fastest since January.

Both domestic and export orders increased over the month. Although new export work rose modestly, partly reflecting increased global activity, the rate of growth eased from July’s seven-month peak.

Upward momentum in U.S. house prices remained strong in the second quarter, as prices rose 2.1 percent from the previous quarter, according to the Federal Housing Finance Agency (FHFA) House Price Index (HPI). This is the eighth consecutive quarterly price increase in the purchase-only, seasonally adjusted index.

“The housing market experienced one of its strongest quarters since the boom in the middle of the last decade,” said FHFA Principal Economist Andrew Leventis.

The HPI is calculated using home sales price information from mortgages sold to or guaranteed by Fannie Mae and Freddie Mac. Compared with last year, house prices rose 7.2 percent from the second quarter of 2012 to the second quarter of 2013. FHFA’s seasonally adjusted monthly index for June was up 0.7 percent from May.

- Claims 336k vs 330k forecast
- 4-week avg 330,500 vs 332,750 previously
- Continued Claims 2.97m vs 2.969m forecast
- Market Reaction: Mildly positive for bond markets.

In the week ending August 17, the advance figure for seasonally adjusted initial claims was 336,000, an increase of 13,000 from the previous week's revised figure of 323,000. The 4-week moving average was 330,500, a decrease of 2,250 from the previous week's revised average of 332,750.

The advance seasonally adjusted insured unemployment rate was 2.3 percent for the week ending August 10, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending August 10 was 2,999,000, an increase of 29,000 from the preceding week's revised level of 2,970,000. The 4-week moving average was 2,985,750, a decrease of 1,000 from the preceding week's revised average of 2,986,750.