MBS Pricing Snapshot

&rauquo;30-year fixed-rate mortgage (FRM) averaged 3.88 percent with an average 0.7 point for the week ending April 12, 2012, down from last week when it averaged 3.98 percent. Last year at this time, the 30-year FRM averaged 4.91 percent.

&rauquo;15-year FRM this week averaged 3.11 percent with an average 0.7 point, down from last week when it averaged 3.21 percent. A year ago at this time, the 15-year FRM averaged 4.13 percent.

&rauquo;5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.85 percent this week, with an average 0.7 point, down from last week when it averaged 2.86 percent. A year ago, the 5-year ARM averaged 3.78 percent.

&rauquo;1-year Treasury-indexed ARM averaged 2.80 percent this week with an average 0.6 point, up from last week when it averaged 2.78 percent. At this time last year, the 1-year ARM averaged 3.25 percent.

After rallying earlier on this morning's economic data, bond markets have reversed course to head back to unchanged levels from yesterday's close.

The stock lever had been in play most of the morning, and indeed coincided with the first bounce (weaker for bonds, stronger for stock futures) around 8:45am. Since the cash open, stocks have been on a tear higher, closing in on a 10pt gain in S&P futures from lows to highs. Treasuries resisted following at first but have since capitulated, at least to some extent.

10 yr yields are up to the mid 2.03's and Fannie 3.5 MBS fell to 103-07, but have put in a decent support bounce and moved up a few ticks to 103-09. The immediate, small-scale fate of bond markets seems like it will continue to be somewhat tied to the stock lever. This relationship could easily break down as the auction approaches, but for now, if stocks look to be bouncing weaker, Treasuries and MBS should be able to hold their recent supportive lines of defense.

In terms of the trading range, the overnight session was mostly uneventful if slightly weaker. Comments from Fed's Dudley did little to slow down a rise in yields into the domestic open. He did, however, mention what many have been thinking in likening the recent swath of upbeat economic data to similar bullish runs in the beginning of 2010 and 2011 that ultimately reversed in grand fashion later in the year. Well played William!

The biggest mover this morning has been the 830am trio of economic data. Jobless Claims were much higher than expected, and as per usual, the previous week was revised higher. International Trade showed a smaller than expected trade deficit with another record for exports and the lowest oil imports since 1997. Producer Prices showed decelerating inflation at the producer level owing largely to lower fuel prices.

All of the above, but mostly the Jobless Claims are bond bullish. We noted in "The Day Ahead" (linked below) that Jobless Claims would be most interesting if it reiterated the point made by last week's surprise miss on NFP. It seems to have done that to some extent, but it also looks as if markets would like to see what else the day has to offer before engaging in utter rally mode.

10yr yields fell tom roughly 2.04 to 2.015 and haven't looked willing to go much lower, bouncing up into the 2.02's recently. Fannie 3.5 MBS (which had another HUGE day of focused origination yesterday) rose from 103-05 to 103-12, 5 ticks higher on the day.

There's Fed Twist buying coming up from 10:15-11:00 (slightly supportive) and the 30yr Bond Auction at 1pm as well as plenty of Fed Speakers. Markets seem content to have rallied a bit so far this morning, but may be waiting to digest some of this afternoon before making firmer commitments to trading in one direction or another.

*Trade Deficit $46.03 bln vs $52.00 bln consensus
*US/China Deficit lowest since March 2011
* OPEC Trade Deficit lowest since Oct 2010
*Crude Oil Imports lowest since Feb 1997

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total February exports of $181.2 billion and imports of $227.2 billion resulted in a goods and services deficit of $46.0 billion, down from $52.5 billion in January, revised. February exports were $0.2 billion more than January exports of $180.9 billion. February imports were $6.3 billion less than January imports of $233.4 billion.

In February, the goods deficit decreased $6.0 billion from January to $61.4 billion, and the services surplus increased $0.5 billion from January to $15.4 billion. Exports of goods decreased $0.6 billion to $128.0 billion, and imports of goods decreased $6.5 billion to $189.4 billion. Exports of services increased $0.8 billion to $53.2 billion, and imports of services increased $0.2 billion to $37.8 billion.

The goods and services deficit increased $0.6 billion from February 2011 to February 2012. Exports were up $15.4 billion, or 9.3 percent, and imports were up $16.1 billion, or 7.6 percent.

*PPI 0.0 vs +0.3 consensus
*Core PPI +0.3 vs +0.2 consensus
* Energy -1.0, Gasoline -2.0, Heating Oil -1.2

The Producer Price Index for finished goods was unchanged in March, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Finished goods prices rose 0.4 percent in February and 0.1 percent in January. At the earlier stages of processing, prices received by manufacturers of intermediate goods climbed 0.7 percent in March, and the crude goods index declined 2.5 percent. On an unadjusted basis, prices for finished goods moved up 2.8 percent for the 12 months ended March 2012, the smallest year-over-year increase since a 2.7-percent rise in June 2010.

* Claims up to 380k vs 355k consensus

In the week ending April 7, the advance figure for seasonally adjusted initial claims was 380,000, an increase of 13,000 from the previous week's revised figure of 367,000. The 4-week moving average was 368,500, an increase of 4,250 from the previous week's revised average of 364,250.

The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending March 31, unchanged from the prior week's unrevised rate of 2.6 percent.

The advance number for seasonally adjusted insured unemployment during the week ending March 31 was 3,251,000, a decrease of 98,000 from the preceding week's revised level of 3,349,000. The 4-week moving average was 3,334,250, a decrease of 35,750 from the preceding week's revised average of 3,370,000.