Just a heads up (as far as most lenders will be concerned) that Fannie 3.0s spent the better part of the past hour trading near their lowest levels since 9am, but seem to have caught some support aver the 3pm Treasury close.

The most frequently visited low of the past hour was 104-14 (still 2/32nds higher on the day) with a few quick visits to 104-13. Going any lower than that could pose some negative reprice risk to what has otherwise been a fairly uneventful day (break to 104-12 or lower).

Moral of the story is that we're sort of grinding it out in the middle ground between "safe" and "not safe" as far as reprice risk is concerned. As always, you'll have to adjust accordingly when considering locking/floating at certain lenders. Those typically quickest to reprice were probably weighing the decision carefully on the recent ticks down to 104-13, but here at 104-15, not so much.

Most of the rest of the pack would need to see 104-12 or lower in order for market-motivated negative reprice risk to develop. 10yr yields backed down from highs near 1.81, but have yet to move convincingly down through the 1.79's. Things could still go either way.

Much like yesterday's overnight session, bond markets drifted calmly and narrowly into stronger territory during Asian and European hours with 10yr yields bottoming out around the 6am hour. As if scripted, the appearance of pre-market domestic trading pushed yields and volume higher into the 8am hour.

Also like yesterday, we got a decent bounce into improved territory ahead of the cash open for stock markets, with lower prices out of the gate helping extend the bond market rally. From 9am to 10am, 10yr yields had moved from 1.80 to nearly 1.77, MBS from 104-13 to 104-19 (Fannie 3.0s).

But unlike yesterday, there was a lot of economic data this morning, not to mention the fact that it made for slightly better viewing in light of the fact that Fiscal Cliff news quickly shifted back from "progress" to "posturing" yesterday.

All of the data at 10am was economically bullish, with Philly Fed's big reversal into positive territory clearly leading the way for stock markets and bond yields to bounce off their lows of the morning. Since then, 10's are back up to 1.7875, equities are at session highs, and MBS are roughly 3/32nds off their 10am highs.

The question now becomes: is economic data enough of a motivation for this selling trend to continue in light of the looming possibilities of Fiscal Cliff headlines? So far, there's been some decent push back as stock markets over the past few minutes seem to be shying away from breaking overnight highs and Treasury yields have only retraced about 50% of their move from the highs to lows this morning (same story with MBS for that matter).

These developments speak to a market that prefers to be contained and cautious rather than pioneer new directional trends. With 1.80 as overhead support in 10's and 104-13 underfoot in MBS, we'd stay optimistic. If those defensive levels break down, not only would we be in negative reprice risk territory, but it would be the first serious challenge to the gentle but consistent rebound from mid-week weakness.

- EHS +5.9 pct to 5.04 mln annual rate (4.87 mln consensus)
- Inventory lowest since Dec 2001 on outright basis
- "months" of inventory lowest since Sept 2005
- 22 pct distressed, down from 24

(December 20, 2012) - Existing-home sales continued to improve in November with low inventory supply pressuring home prices, 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, rose 5.9 percent to a seasonally adjusted annual rate of 5.04 million in November from a downwardly revised 4.76 million in October, and are 14.5 percent higher than the 4.40 million-unit pace in November 2011. Sales are at the highest level since November 2009 when the annual pace spiked at 5.44 million.

Lawrence Yun , NAR chief economist, said there is healthy market demand. "Momentum continues to build in the housing market from growing jobs and a bursting out of household formation," he said. "With lower rental vacancy rates and rising rents, combined with still historically favorable affordability conditions, more people are buying homes. Areas impacted by Hurricane Sandy show storm-related disruptions but overall activity in the Northeast is up, offset by gains in unaffected areas."

- Philly Fed Index 8.1 vs -3.0 Consensus
- New Orders 10.1 vs -4.6 previously
- New orders highest since February
- Employment/Business Conditions highest since April

Manufacturing activity rebounded this month, according to firms responding to the December Business Outlook Survey. Following reported declines in business activity in late October and early November from the effects of Hurricane Sandy, most of the survey’s measures showed notable improvement this month. The survey’s broad indicators of future activity also showed improvement this month.

Indicators Suggest a Pickup at Year-End

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a reading of ‑10.7 in November to 8.1 this month. This is the highest reading since April and is slightly above the reading before the post-storm decline in November (see Chart). The demand for manufactured goods picked up: the new orders index increased 15 points, from ‑4.6 in November to 10.7 this month. The current shipments index also improved notably, rising by 25 points.

Labor market conditions at the reporting firms improved marginally this month. The current employment index, at 3.6, registered its first positive reading in six months. The percentage of firms reporting increases in employment (20 percent) narrowly exceeded the percentage reporting decreases (16 percent). Firms also indicated an increase in the average workweek compared to last month.

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.1 percent in the third quarter of 2012 (that is, from the second quarter to the third quarter), according to the "third" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.3 percent.

The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 2.7 percent (see "Revisions" on page 3). The third estimate has not greatly changed the general picture of the economy for the third quarter except that personal consumption expenditures (PCE) is now showing a modest pickup, and imports is now showing a downturn.

The increase in real GDP in the third quarter primarily reflected positive contributions from PCE, private inventory investment, federal government spending, residential fixed investment, and exports that were partly offset by a negative contribution from nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.

The acceleration in real GDP in the third quarter primarily reflected upturns in private inventory investment and in federal government spending, a downturn in imports, an upturn in state and local government spending, and an acceleration in residential fixed investment that were partly offset by a downturn in nonresidential fixed investment and a deceleration in exports.

- Claims up to 361k vs 357k consensus and 344k previously

In the week ending December 15, the advance figure for seasonally adjusted initial claims was 361,000, an increase of 17,000 from the previous week's revised figure of 344,000. The 4-week moving average was 367,750, a decrease of 13,750 from the previous week's unrevised average of 381,500.

The advance seasonally adjusted insured unemployment rate was 2.5 percent for the week ending December 8, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending December 8 was 3,225,000, an increase of 12,000 from the preceding week's revised level of 3,213,000. The 4-week moving average was 3,240,500, a decrease of 33,500 from the preceding week's revised average of 3,274,000.

Just a heads up (as far as most lenders will be concerned) that Fannie 3.0s spent the better part of the past hour trading near their lowest levels since 9am, but seem to have caught some support aver the 3pm Treasury close.

The most frequently visited low of the past hour was 104-14 (still 2/32nds higher on the day) with a few quick visits to 104-13. Going any lower than that could pose some negative reprice risk to what has otherwise been a fairly uneventful day (break to 104-12 or lower).

Moral of the story is that we're sort of grinding it out in the middle ground between "safe" and "not safe" as far as reprice risk is concerned. As always, you'll have to adjust accordingly when considering locking/floating at certain lenders. Those typically quickest to reprice were probably weighing the decision carefully on the recent ticks down to 104-13, but here at 104-15, not so much.

Most of the rest of the pack would need to see 104-12 or lower in order for market-motivated negative reprice risk to develop. 10yr yields backed down from highs near 1.81, but have yet to move convincingly down through the 1.79's. Things could still go either way.

Much like yesterday's overnight session, bond markets drifted calmly and narrowly into stronger territory during Asian and European hours with 10yr yields bottoming out around the 6am hour. As if scripted, the appearance of pre-market domestic trading pushed yields and volume higher into the 8am hour.

Also like yesterday, we got a decent bounce into improved territory ahead of the cash open for stock markets, with lower prices out of the gate helping extend the bond market rally. From 9am to 10am, 10yr yields had moved from 1.80 to nearly 1.77, MBS from 104-13 to 104-19 (Fannie 3.0s).

But unlike yesterday, there was a lot of economic data this morning, not to mention the fact that it made for slightly better viewing in light of the fact that Fiscal Cliff news quickly shifted back from "progress" to "posturing" yesterday.

All of the data at 10am was economically bullish, with Philly Fed's big reversal into positive territory clearly leading the way for stock markets and bond yields to bounce off their lows of the morning. Since then, 10's are back up to 1.7875, equities are at session highs, and MBS are roughly 3/32nds off their 10am highs.

The question now becomes: is economic data enough of a motivation for this selling trend to continue in light of the looming possibilities of Fiscal Cliff headlines? So far, there's been some decent push back as stock markets over the past few minutes seem to be shying away from breaking overnight highs and Treasury yields have only retraced about 50% of their move from the highs to lows this morning (same story with MBS for that matter).

These developments speak to a market that prefers to be contained and cautious rather than pioneer new directional trends. With 1.80 as overhead support in 10's and 104-13 underfoot in MBS, we'd stay optimistic. If those defensive levels break down, not only would we be in negative reprice risk territory, but it would be the first serious challenge to the gentle but consistent rebound from mid-week weakness.

- EHS +5.9 pct to 5.04 mln annual rate (4.87 mln consensus)
- Inventory lowest since Dec 2001 on outright basis
- "months" of inventory lowest since Sept 2005
- 22 pct distressed, down from 24

(December 20, 2012) - Existing-home sales continued to improve in November with low inventory supply pressuring home prices, 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, rose 5.9 percent to a seasonally adjusted annual rate of 5.04 million in November from a downwardly revised 4.76 million in October, and are 14.5 percent higher than the 4.40 million-unit pace in November 2011. Sales are at the highest level since November 2009 when the annual pace spiked at 5.44 million.

Lawrence Yun , NAR chief economist, said there is healthy market demand. "Momentum continues to build in the housing market from growing jobs and a bursting out of household formation," he said. "With lower rental vacancy rates and rising rents, combined with still historically favorable affordability conditions, more people are buying homes. Areas impacted by Hurricane Sandy show storm-related disruptions but overall activity in the Northeast is up, offset by gains in unaffected areas."

- Philly Fed Index 8.1 vs -3.0 Consensus
- New Orders 10.1 vs -4.6 previously
- New orders highest since February
- Employment/Business Conditions highest since April

Manufacturing activity rebounded this month, according to firms responding to the December Business Outlook Survey. Following reported declines in business activity in late October and early November from the effects of Hurricane Sandy, most of the survey’s measures showed notable improvement this month. The survey’s broad indicators of future activity also showed improvement this month.

Indicators Suggest a Pickup at Year-End

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a reading of ‑10.7 in November to 8.1 this month. This is the highest reading since April and is slightly above the reading before the post-storm decline in November (see Chart). The demand for manufactured goods picked up: the new orders index increased 15 points, from ‑4.6 in November to 10.7 this month. The current shipments index also improved notably, rising by 25 points.

Labor market conditions at the reporting firms improved marginally this month. The current employment index, at 3.6, registered its first positive reading in six months. The percentage of firms reporting increases in employment (20 percent) narrowly exceeded the percentage reporting decreases (16 percent). Firms also indicated an increase in the average workweek compared to last month.

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.1 percent in the third quarter of 2012 (that is, from the second quarter to the third quarter), according to the "third" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.3 percent.

The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 2.7 percent (see "Revisions" on page 3). The third estimate has not greatly changed the general picture of the economy for the third quarter except that personal consumption expenditures (PCE) is now showing a modest pickup, and imports is now showing a downturn.

The increase in real GDP in the third quarter primarily reflected positive contributions from PCE, private inventory investment, federal government spending, residential fixed investment, and exports that were partly offset by a negative contribution from nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.

The acceleration in real GDP in the third quarter primarily reflected upturns in private inventory investment and in federal government spending, a downturn in imports, an upturn in state and local government spending, and an acceleration in residential fixed investment that were partly offset by a downturn in nonresidential fixed investment and a deceleration in exports.

- Claims up to 361k vs 357k consensus and 344k previously

In the week ending December 15, the advance figure for seasonally adjusted initial claims was 361,000, an increase of 17,000 from the previous week's revised figure of 344,000. The 4-week moving average was 367,750, a decrease of 13,750 from the previous week's unrevised average of 381,500.

The advance seasonally adjusted insured unemployment rate was 2.5 percent for the week ending December 8, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending December 8 was 3,225,000, an increase of 12,000 from the preceding week's revised level of 3,213,000. The 4-week moving average was 3,240,500, a decrease of 33,500 from the preceding week's revised average of 3,274,000.

- EHS +5.9 pct to 5.04 mln annual rate (4.87 mln consensus)
- Inventory lowest since Dec 2001 on outright basis
- "months" of inventory lowest since Sept 2005
- 22 pct distressed, down from 24

(December 20, 2012) - Existing-home sales continued to improve in November with low inventory supply pressuring home prices, 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, rose 5.9 percent to a seasonally adjusted annual rate of 5.04 million in November from a downwardly revised 4.76 million in October, and are 14.5 percent higher than the 4.40 million-unit pace in November 2011. Sales are at the highest level since November 2009 when the annual pace spiked at 5.44 million.

Lawrence Yun , NAR chief economist, said there is healthy market demand. "Momentum continues to build in the housing market from growing jobs and a bursting out of household formation," he said. "With lower rental vacancy rates and rising rents, combined with still historically favorable affordability conditions, more people are buying homes. Areas impacted by Hurricane Sandy show storm-related disruptions but overall activity in the Northeast is up, offset by gains in unaffected areas."

- Philly Fed Index 8.1 vs -3.0 Consensus
- New Orders 10.1 vs -4.6 previously
- New orders highest since February
- Employment/Business Conditions highest since April

Manufacturing activity rebounded this month, according to firms responding to the December Business Outlook Survey. Following reported declines in business activity in late October and early November from the effects of Hurricane Sandy, most of the survey’s measures showed notable improvement this month. The survey’s broad indicators of future activity also showed improvement this month.

Indicators Suggest a Pickup at Year-End

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a reading of ‑10.7 in November to 8.1 this month. This is the highest reading since April and is slightly above the reading before the post-storm decline in November (see Chart). The demand for manufactured goods picked up: the new orders index increased 15 points, from ‑4.6 in November to 10.7 this month. The current shipments index also improved notably, rising by 25 points.

Labor market conditions at the reporting firms improved marginally this month. The current employment index, at 3.6, registered its first positive reading in six months. The percentage of firms reporting increases in employment (20 percent) narrowly exceeded the percentage reporting decreases (16 percent). Firms also indicated an increase in the average workweek compared to last month.

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.1 percent in the third quarter of 2012 (that is, from the second quarter to the third quarter), according to the "third" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.3 percent.

The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 2.7 percent (see "Revisions" on page 3). The third estimate has not greatly changed the general picture of the economy for the third quarter except that personal consumption expenditures (PCE) is now showing a modest pickup, and imports is now showing a downturn.

The increase in real GDP in the third quarter primarily reflected positive contributions from PCE, private inventory investment, federal government spending, residential fixed investment, and exports that were partly offset by a negative contribution from nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.

The acceleration in real GDP in the third quarter primarily reflected upturns in private inventory investment and in federal government spending, a downturn in imports, an upturn in state and local government spending, and an acceleration in residential fixed investment that were partly offset by a downturn in nonresidential fixed investment and a deceleration in exports.

- Claims up to 361k vs 357k consensus and 344k previously

In the week ending December 15, the advance figure for seasonally adjusted initial claims was 361,000, an increase of 17,000 from the previous week's revised figure of 344,000. The 4-week moving average was 367,750, a decrease of 13,750 from the previous week's unrevised average of 381,500.

The advance seasonally adjusted insured unemployment rate was 2.5 percent for the week ending December 8, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending December 8 was 3,225,000, an increase of 12,000 from the preceding week's revised level of 3,213,000. The 4-week moving average was 3,240,500, a decrease of 33,500 from the preceding week's revised average of 3,274,000.