MBS MID-DAY: Back Into Positive Territory After Philly Fed Data

MBS Pricing Snapshot

- Philly Fed at 6.5 vs 15.0 forecast!

Needless to say, the rest of the reports internals are weak as well, especially the Employment Index at 1.1 vs 15.4 previously.

At the very least, this has arrested the breakaway move into weaker territory that immediately preceded the data. Frustratingly though, the bounce back hasn't been as decisive as the data would seem to suggest.

10's are only back down to 2.813, but it's better than a sharp stick in the eye. Give it some time to play out.

Treasuries and MBS are both reciting their "to be or not to be" soliloquies, contemplating their will to live should the Philly Fed Index come in significantly stronger than expected. Really, it's about that simple.

Fannie 3.5s are down 9 ticks at 100-19 and 10's are up 4.6bps at 2.835. Philly Fed correlates pretty well with the national ISM numbers, plus we had stronger than expected Market PMI this morning. If Philly Fed corroborates, it will be seen as suggesting yet another ISM beat when we get back from Thanksgiving break.

Those with super early rate sheets may already be looking at negative reprice risk.

The overnight session was surprisingly uneventful considering the pace of and tenor of Wednesday's domestic session. 10yr yields held a range of 2.775 to 2.805 into the first data of the morning. MBS opened just above yesterday's latest levels with Fannie 3.5s at 100-27

Stronger-than-expected Jobless Claims sparked the first move into weaker territory with MBS ticking down to 100-25 and 10yr yields up to 2.814. Most recently, a much stronger PMI reading from Markit (not nearly as potent as ISM's version, but a consideration when it beats/misses by a wide enough margin) pushed bonds into weaker territory still.

10's briefly hit 2.82 and Fannie 3.5s are holding at 100-25. Fannie 4.0s (which are increasingly relevant, if not dominant at current levels) are down 5 ticks at 104-07. The next significant data of the morning, and the biggest potential market-mover of the bunch, hits at 10am with the Philly Fed Index.

- Claims 323k vs 335k forecast, 344k previously
- Continued Claims 2.876mln vs 2.87 mln forecast
- Market Reaction: bond markets slightly weaker.

In the week ending November 16, the advance figure for seasonally adjusted initial claims was 323,000, a decrease of 21,000 from the previous week's revised figure of 344,000. The 4-week moving average was 338,500, a decrease of 6,750 from the previous week's revised average of 345,250.

The advance seasonally adjusted insured unemployment rate was 2.2 percent for the week ending November 9, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending November 9 was 2,876,000, an increase of 66,000 from the preceding week's revised level of 2,810,000. The 4-week moving average was 2,856,750, an increase of 6,500 from the preceding week's revised average of 2,850,250.