MBS MID-DAY: Gradual Improvements; Best Recent Levels

MBS Pricing Snapshot

What is being seen at 2.672% in terms of 10yr yields is similarly being seen in Fannie 4.0s at 104-15. We've had 10-20 bounces around there since 10:15am and continue to have a hard time making it through, despite being at the highs of the day. 10yr yields are at their lows, but still blocked by technical resistance at 2.672.

If these levels break, it could be viewed as a technical "buy" signal, resulting in further incremental price improvements. Until/unless that happens, current activity is reinforcing the resistance. One or two lenders may be considering positive reprices, but breaking the technical barriers at 104-15 and 2.672 would pave the way for a higher probability reprice situation.

- Confidence 79.7 vs 79.9 Forecast
- Last month revised to 81.8 from 81.5
- Present Situation 73.2 vs 70.9 previously
- Expectations 84.1 vs 89.0 previously
- 'Jobs Hard to Get' 32.7 vs 33.3 previously

- Market Reaction: Treasuries continue to struggle with a break below 2.68, but move back within striking distance after the weaker data. MBS continue to outperform and are 1 tick higher than previous highs.

The Conference Board Consumer Confidence Index®, which had increased slightly in August, decreased in September. The Index now stands at 79.7 (1985=100), down from 81.8 in August. The Present Situation Index grew to 73.2 from 70.9. The Expectations Index fell to 84.1 from 89.0 last month.

The monthly Consumer Confidence Survey®, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch. The cutoff date for the preliminary results was September 13.

Says Lynn Franco, Director of Economic Indicators: “Consumer Confidence decreased in September as concerns about the short-term outlook for both jobs and earnings resurfaced, while expectations for future business conditions were little changed. Consumers’ assessment of current business and labor market conditions, however, was more positive. While overall economic conditions appear to have moderately improved, consumers are uncertain that the momentum can be sustained in the months ahead.”

U.S. house price appreciation continued in July 2013, rising 1.0 percent on a seasonally adjusted basis from the previous month, according to the Federal Housing Finance Agency (FHFA) monthly House Price Index (HPI). The July HPI change marks the eighteenth consecutive monthly price increase in the purchase-only, seasonally adjusted index. The previously reported 0.7 percent increase in June remained unchanged.

The HPI is calculated using home sales price information from mortgages either sold to or guaranteed by Fannie Mae and Freddie Mac. Compared to July 2012, house prices were up 8.8 percent in July. The U.S. index is 9.6 percent below its April 2007 peak and is roughly the same as the March 2005 index level.

- 20 city index +0.6 vs +0.8 forecast
- 20 city Year/Year +12.4 vs +12.4 forecast
- Year/Year increase is highest since Feb 2006

Data through July 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, showed increases of 1.9% and 1.8% from June for the 10- and 20-City Composites. For at least four months in a row, all 20 cities showed monthly gains. Phoenix posted 22 consecutive months of positive returns. Although home prices in all the cities increased, 15 cities and both Composites saw these monthly rates decelerate in July versus June.

Over the last 12 months, prices rose 12.3% and 12.4% as measured by the 10- and 20-City Composites. The year-over-year returns show a brighter outlook with 13 cities posting improvement in July versus June values. Las Vegas increased the most from +24.9% in June to an impressive +27.5% in July.

At a glance:

- Flat to start overnight session
- Slightly stronger in Europe, German data/ECB help
- Still in positive territory this morning, but blocked by long term resistance so far in Treasuries.

Both Treasuries and MBS are close to their highest prices from last week, seen in the wake of the FOMC Announcement. Treasuries aren't quite there yet (2.68 this morning vs 2.673 briefly last Wednesday), but MBS are slightly better (Fannie 4.0s at 104-12 this morning vs 104-08 on Thursday).

We've managed to return to these outer boundaries quite gradually over the past 3 sessions and this morning's overnight session was no exception. Treasuries were flat and inactive during Asian hours, perking up a bit into the European session with some help from weaker Economic data in Germany and most recently after supportive comments from ECB board member Coeure.

The latest push toward positive levels came right at the open of the CME, when Treasury Futures floor trading starts and liquidity begins ramping up for the day. It's notable then, that resistance has remained in place for Treasuries despite that increased volume. A sincere break into better territory may require a sincere miss in the 10am Consumer Confidence data.