MBS AFTERNOON: Not Holding Our Breath

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The Monthly Treasury Statement was released today...in April the US Budget deficit increased by $20.91bn. This is a weak number considering the Treasury usally records a surplus in April....that is because April is national "pay the government taxes" month. For instance, last April the US Government had a $159.3bn surplus. To further illustrate..this is the first April since 1983 that the US government didnt report a surplus.

Here is the month over month surplus/deficit chart...

Here is the table that shows you reciepts and outlays on a month to month basis...SURPLUS is denoted with - sign

The total budget deficit rose to a record....$802bn.

Data Manipulation: the budget deficit would be much bigger if the Treasury department wasnt adjusted their accounting methods for TARP payments (using NPV as opposed to cash basis)...the cash basis total budget deficit: $977bn

But hey...at least they didnt try and hide it!!!! Here is the disclaimer message printed front and center on page 1 of the press release:

HIGHLIGHT

"The administration has reclassified prior month expenditures related to the Emergency Economic Stabilization Act (EESA- also known as TARP). Consistent with statutory requirements of the Federal Credit Reform Act and EESA, TARP purchases are now being accounted for on a net present value basis, taking into account market risk. Accordingly, budget outlays have been reduced and direct loan financing activity correspondingly increased by $175 billion."

On Monday the Office of Management and Budget (OMB) reported that they expect the budget deficit to rise to $1,840,000,000,000 by the end of 2009....thats $1.84 trillion if you lost track of the zeros

Compared to last year, individual tax reciepts are down $180bn year to date. Rough...

 

There is MBS specific news in this data release....on page 27

That says the Treasury spent $11.505bn on Agency MBS in April...bringing the fiscal year total to $135.77bn. Perspective: this is the lowest amount the Treasury Department has purchased since September 2008. No big deal though...the Fed has used $429bn to more than offset the supply of loans offered up by mortgage bankers.

 

Yawn...its been a really slow day in the MBS market.

Since 5pm "Going Out" Marks....

FN30________________________________

FN 4.0 -------->>>> +0-05  to 100-03    from 99-30

FN 4.5 -------->>>> +0-04  to 101-27  from 101-23

FN 5.0 -------->>>> +0-07  to 102-26  from 102-19

FN 5.5 -------->>>> +0-06  to 103-20  from 103-14

FN 6.0 -------->>>> +0-04  to 104-25  from 104-21

GN30________________________________ 

GN 4.0 -------->>>> +0-04  to 100-04  from 100-00

GN 4.5 -------->>>> +0-01  to 101-31  from 101-30

GN 5.0 -------->>>> +0-07  to 103-17  from 103-10

GN 5.5 -------->>>> +0-08  to 104-03  from 103-27

GN 6.0 -------->>>> +0-04  to 104-22  from 104-18

UST10YR: 3.1727%

2s/10s: 227.95 bps

DOW: +6633  to 84884

We are looking for the FN 4.0 to hold its gains over par (100-00) and for the FN 4.5 to reach 102-00. If we can hover near those price levels then lenders may begin to consider passing along better rate sheets....but we arent holding breath in this trading environment. Slow trading flows are a sign that any originator supply dumps would warrant a sell off and a "reprice for the worse" alert. Post settlement trading activity should pick up a bit though....of course that depends on the shape of the yield curve and the participation of the Federal Reserve in the fixed income marketplace.

We are currently testing the highs of the day...if history holds 100-03 will provide heavy overhead resistance and prices will move lower....