MBS Pricing Snapshot

With no scheduled Fed Twist buying to support Treasuries, plus the need to accommodate today's 10yr Auction ($21 bln), some measure of weakness was to be expected. But the Weakness has been far from alarming with 10's merely creeping up into the 2.03's for the most part, whereas we see the more serious pivot zone beginning in the mid 2.06's.

It's pretty scary territory above 2.06 as we don't really have much by way of recent yield movement between there and 2.14 (though there's plenty of 2.06-2.09 from early March).

10's have been inching higher inside a fairly regular trend channel but are currently testing the LOWER side of that channel. It would be a bit of a surprise to see further rallying develop 2 hours before the auction. In fact, we'd rather NOT see any acceleration to the downside in yields as it could make the auction tougher.

MBS, for their part, seem content to go mostly sideways this morning, slightly outperforming Treasuries. Fannie 3.5's are currently down 6 ticks from yesterday's post-roll close of 103-14 to 103-08, and haven't deviated from those levels by more than 2 ticks. Things are VERY calm in in terms of price action, though volume is heavy and fairly well balanced.

More important than this morning's report on Import and Export Prices is the Fed-speak from Lockhart (voter) that came about half an hour earlier. Here are some of the notable bullets:

bond market pros:

* Sterilized bond buying remains an option
* 2014 verbiage still appropriate
* Inflation consistent with 2% target
* Can't take risk of EU-related spillover off table


cons:

* too early to say economy sputtering based on Jobs report
* another round of buying requires dramatic negative change

So despite a few nods to the hawks, Lockhart generally coming down on the more dovish side of the FOMC spectrum. Yields had generally been on the rise in the overnight session, but Lockhart's comments coincided with some support.

Fannie 3.5 (May coupons) are up 3 ticks to 103-09 after opening down a quarter of a point from yesterday's close (103-06 this morning vs 103-14). The now-retired April coupons closed at 103-23, so you can chalk up 9+ ticks to the roll.

Things have been relatively sideways and choppy since Lockhart's comments and the morning's only economic data, Import/Export Prices, did nothing to change that.

With no scheduled Fed Twist buying, the need to take down $21 bln in 10yr Notes at auction today, and considering that 10's rallied under 2% yesterday for the first time in about a month, the odds seem somewhat stacked against bond markets. See the "Day Ahead" for more:

* Imports Prices +1.3 pct vs +0.8 forecast
* Export Prices +0.8 pct vs +0.4 pct forecast
* Petroleum-related imports +4.3 pct
* All largest since April 2011
* Year over Year, Import/Export prices smallest since 11/2009

U.S. import prices advanced 1.3 percent in March, the U.S. Bureau of Labor Statistics reported today, after edging down 0.1 percent the previous month. Higher fuel and nonfuel prices contributed to the advance. Prices for U.S. exports rose 0.8 percent in March, following increases of 0.4 percent in February and 0.2 percent in January.

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