Good Morning.

  • Private Residential Construction rose 1.3 pct in January. The rest of the construction spending report was abysmal. READ MORE
  • Personal spending increased 0.5 pct in January. Personal income was +0.1 pct. Core PCE (inflation) was unchanged. The savings rate fell from 4.2 pct to 3.3 pct. READ MORE
  • ISM Manufacturing declined to 56.5 from 57.4 in January. Foul weather can be cited as a culprit of contraction. READ MORE
  • Federal Reserve's Vice Chairman Donald Kohn submitted his resignation. Now the debate begins as to who will replace him. A dove or a hawk?
  • The expiration date of Fannie's DU REFI PLUS and Freddie's Relief Refi Program was extended out until June 30, 2011. READ MORE
  • HUD launches online resource to fight loan mod scams. READ MORE
  • Reverse mortgages get special attention from federal investigators. READ MORE

PLUS several other relevant stories that I published in Around the Web

Rate sheet influential benchmark Treasuries traded in a relatively quiet manner yesterday. Price action was choppy but never ventured outside the recent range. The 3.625% coupon bearing 10 year Treasury note was +0-03 at 100-04 yielding 3.608%. The 2s.10s yield curve was unchanged at 280bps.

The FN 4.0 went out the door -0-01 at 98-07 yielding 4.172% and the FN 4.5 ended the day -0-01 at 101-02 yielding 4.382%. The secondary market current coupon was 4.309%...basically unchanged on the day.  Yield spreads were a slightly tighter.

So Far Today...

Stocks are stronger.

Treasury futures are weaker.Trading volume was below average overnight.

Notice yesterday's range bound session found support at the 62% Fibonacci retracement of the Dec. 21 sell off. That level has been broken this morning, traders have failed to take out Thursday's yield high though. The 3.625 coupon bearing 10 year TSY note is currently 0-07 at 99-29 yielding 3.634%. 3.66% is the next target for bond bears. 3.60% for bulls.

 

Mortgages have been playing follow the leader with benchmark Treasuries over the past few session. This continues ahead of what is expected to be a slow trading session. The FN 4.0 is 0-04 at 98-02 yielding 4.186% and the FN 4.5 is 0-03 at 100-30 yielding 4.394%. The secondary market current coupon is 4.332%. The CC yield is +70.1bps over the 10yr TSY note and +63.2/10yr swaps.

I wouldn't expect much movement outside the ranges outlined above. The stock lever is engaged. Reprices for the better would be considered if 10s break 3.60% and the FN 4.5 price ticks over 101-06. Reprices for the worse if 10s hit 3.66% and the FN 4.5 breaks 100-24.

NEXT EVENT: ADP tomorrow morning

Fannie Mae announced further details regarding delinquency buyouts. MBS traders were waiting for an update on the timing of FNs buyout. Yesterday they told us they will purchase between 150,000 and 200,000 delinquent loans in March. Purchases will be prioritized as so: modified loans and loans that become 24 months delinquent, loans in MBS having the highest MBS pass-through rates, loans backing CL or CI prefixes, and lastly, loans having the highest unpaid principal balances.

CL and CI prefixes denote 30yr fixed and 15 year fixed loans.

READ MORE about how this has affected MBS valuations.