MBS MID-DAY: Mostly Maintaining Composure Ahead of Tuesday's NFP

MBS Pricing Snapshot

Just a heads-up that MBS haven't experienced any additional losses since the last alert, and in fact are 1 tick higher at the moment. 10yr yields are similarly improved over the same time, having fallen to 2.605. We're not dealing with massive movement hear, but it reinforces the limited nature of earlier reprice risk.

Fannie 3.5s just hit new lows for the morning, down 6 ticks at 101-29. This is far enough from some lenders' initial rate sheet print times to consider some negative reprice risk. 10yr yields are up 2.3bps at 2.6123.

All of the above is very much within the narrow, sideways range that dominated late Sep and early Oct, and is more a factor of Friday's strength returning to the trend than it is a statement about "new weakness." This morning's Existing Home Sales data hasn't been a factor as the volume and movement was primarily seen on either side of the data (as opposed to lining up with the data).

The tacit implication is that some of the volatility could relate to the Fed's scheduled Treasury buying operation, in which case, we could see it shift around 11:02am. Between now and then, reprice risk is light to moderate for some lenders--not pronounced unless we lose several more ticks.

- Sept Sales at 5.29 mln annual rate vs 5.30 forecast
- Aug sales revised down to 5.39mln from 5.48 mln
- Inventory +1.8 pct to 2.21 mln units
- First year-over-year increase in inventory since 2011
- Median price drops from $209k to 199k
- 14 pct distressed sales vs 12 pct previously
- Market Reaction: Stock prices higher and bond markets weaker, despite negative revision and headline miss.

After hitting the highest level in nearly four years, existing-home sales declined in September, but limited inventory conditions continued to pressure home prices in much of the country, according to the National Association of Realtors®.

Total existing-home sales1, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 1.9 percent to a seasonally adjusted annual rate of 5.29 million in September from a downwardly revised 5.39 million in August, but are 10.7 percent above the 4.78 million-unit pace in September 2012. Sales have remained above year-ago levels for the past 27 months.

Lawrence Yun, NAR chief economist, said a decline was expected. “Affordability has fallen to a five-year low as home price increases easily outpaced income growth,” he said. “Expected rising mortgage interest rates will further lower affordability in upcoming months. Next month we may see some delays associated with the government shutdown.”

Treasury trading in the overnight session proved to be an uneventful, low-volume extension of Friday afternoon's momentum. 10yr yields clung to Friday's range throughout and are currently half a bp higher at 2.5941.

MBS are a bit weaker by comparison, but still inside Friday's range at 102-00 for Fannie 3.5s. MBS, especially, can be a bit "groggy" on slow Monday mornings in that the number of active buyers and sellers doesn't connote a "bustling marketplace" just yet. As such, some movement of 2-3 ticks at a time is possible until/unless activity picks up.

Part of the atmosphere of reservation could have to do with tomorrow being NFP day instead of Friday October 4th. NFP is the biggest potential market mover every month. Not only is that doubly true this month, but bond markets are right on the edge of a range breakout, so there's extra reason to "wait and see."

Despite the majority of the focus being on tomorrow morning's data, we will get Existing Home Sales this morning at 10am. That's it in terms of economic data.