MBS Pricing Snapshot

"The Mortgage Bankers Association (MBA) today announced it is increasing its mortgage origination forecast for 2012 by almost $200 billion, due entirely to an increase in refinances. MBA now expects that mortgage originations will reach $1.28 trillion in 2012, up from $1.26 trillion in 2011.

Refinance originations are now expected to total $870 billion in 2012, an almost identical amount to 2011. MBA is slightly lowering its purchase originations forecast for 2012 from $415 billion to $409 billion."

30-year fixed-rate mortgage (FRM) averaged 3.78 percent with an average 0.8 point for the week ending May 24, 2012, down from last week when it averaged 3.79 percent. Last year at this time, the 30-year FRM averaged 4.60 percent.

15-year FRM this week averaged 3.04 percent with an average 0.7 point, unchanged from last week. A year ago at this time, the 15-year FRM averaged 3.78 percent.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.83 percent this week, with an average 0.6 point, unchanged from last week. A year ago, the 5-year ARM averaged 3.41 percent.

1-year Treasury-indexed ARM averaged 2.75 percent this week with an average 0.4 point, down from last week when it averaged 2.78 percent. At this time last year, the 1-year ARM averaged 3.11 percent.

It wasn't a great overnight session for bonds, though it wasn't catastrophic by any means. After yields followed yesterday's late stock rally higher on rumors that the EU is considering guaranteeing certain bank deposits, those weaker treading levels were maintained in relatively low volume into the Asian session.

European hours saw 10's move back lower in yield, near the best levels of the New York session into Germany's weaker than expected IFO Business Climate data. But paradoxically, yields snapped back to the upside following the data and domestic traders were standing in line outside the doors of the New York open to pile on that bandwagon.

As we said in the The Day Ahead, we're not so eager to attribute each and every little move today as perfectly connected to a causal source, but rather, we expect a range trade ahead of more important data in the coming weeks, with markets using ostensibly significant pieces of data or technical levels as cues to adjust levels INSIDE that range.

That seems like what we're seeing in the overnight session, and it looks like technical levels outweighed the fundamental assessment of the weaker-than-expected data in the European session. Now we have weaker-than-expected data at home and markets have mostly faded that as well. 10yr yields are up another bp or so from data time and MBS are perhaps holding their ground slightly better with Fannie 3.5's down 5 ticks on the morning at 104-08.

We'd caution though, that from these mid 1.76 levels in 10yr yields, the next technical stop is a quick jump to at least 1.78 if not 1.79 (bottom of intermediate term trend channel from early April), and that's a storm MBS might be less willing to weather so gracefully.

* Headline Durables +0.2 vs +0.5 consensus
* Excluding Transportation -0.6 vs +0.9 consensus


New orders for manufactured durable goods in April increased $0.3 billion or 0.2 percent to $215.5 billion, the U.S. Census Bureau announced today. This increase, up two of the last three months, followed a 3.7 percent March decrease. Excluding transportation, new orders decreased 0.6 percent. Excluding defense, new orders increased 1.2 percent.

Transportation equipment, also up two of the last three months, had the largest increase, $1.3 billion or 2.1 percent to $62.2 billion. This was due to motor vehicles and parts, which increased $2.3 billion.

Shipments of manufactured durable goods in April, up four of the last five months, increased $1.5 billion or 0.7 percent to $222.7 billion. This followed a 1.0 percent March increase.

Transportation equipment, also up four of the last five months, had the largest increase, $1.9 billion or 3.1 percent to $63.8 billion. This followed a 2.3 percent March increase.

Unfilled orders for manufactured durable goods in April, down following twenty-seven consecutive monthly increases, decreased $0.7 billion or 0.1 percent to $985.3 billion. This followed a slight March increase. Transportation equipment, down two consecutive months, had the largest decrease, $1.6 billion or 0.3 percent to $566.4 billion.

Inventories of manufactured durable goods in April, up twenty-seven of the last twenty-eight months, increased $1.1 billion or 0.3 percent to $364.1 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.4 percent March increase.

Machinery, up twenty-five of the last twenty-six months, had the largest increase, $1.1 billion or 1.7 percent to $65.2 billion. This was also at the highest level since the series was first published on a NAICS basis.

*Claims 370k vs 370k consensus
* Continued Claims 3.26 mln vs 3.25 mln consensus
* Previous week revised higher to 372k

In the week ending May 19, the advance figure for seasonally adjusted initial claims was 370,000, a decrease of 2,000 from the previous week's revised figure of 372,000. The 4-week moving average was 370,000, a decrease of 5,500 from the previous week's revised average of 375,500.

The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending May 12, unchanged from the prior week's unrevised rate.

The advance number for seasonally adjusted insured unemployment during the week ending May 12 was 3,260,000, a decrease of 29,000 from the preceding week's revised level of 3,289,000. The 4-week moving average was 3,271,500, a decrease of 17,250 from the preceding week's revised average of 3,288,750.