MBS Pricing Snapshot

30-year fixed-rate mortgage (FRM) averaged 3.75 percent with an average 0.8 point for the week ending May 31, 2012, down from last week when it averaged 3.78 percent. Last year at this time, the 30-year FRM averaged 4.55 percent.

15-year FRM this week averaged 2.97 percent with an average 0.7 point, down changed from last week when it averaged 3.04 percent. A year ago at this time, the 15-year FRM averaged 3.74 percent.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.84 percent this week, with an average 0.6 point, up from last week when it averaged 2.83. 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, unchanged from last week. At this time last year, the 1-year ARM averaged 3.13 percent.

* PMI 52.7 vs consensus 56.5

May 2012: The Chicago Purchasing Managers reported the May Chicago Business Barometer decreased for a third consecutive month to its lowest level since September 2009. The short term trend of the Chicago Business Barometer, and all seven Business Activity indexes, declined in May.

Among the Business Activity measures, only the Supplier Delivery index expanded faster while Order Backlogs and Inventories contracted.

The Production index fell to neutral while, inexplicably, measures of Business Policy advanced.

BUSINESS ACTIVITY:
• PRODUCTION and NEW ORDERS lowest since September 2009;
• PRICES PAID lowest since September 2010;
• EMPLOYMENT rate of growth slowed

Despite yesterday being a tough act to follow, both MBS and Treasuries are carving out incrementally stronger record levels after a raft of weaker-than-expected economic data. All across the board this morning, things were in line with expectations or worse:

- Challenger Job Cuts were an 61k vs 40k previously
- ADP Employment was 133k vs a 148k forecast
- Jobless Claims were 383k vs a 370k forecast
- GDP was an as-expected +1.9%, but corporate profits were down 4.1% vs a +1.1% consensus, the largest drop since Q4 2008

All told, it was enough to nudge 10yr yields briefly down to another record low of 1.593 while Fannie 3.5 MBS hit another record high of 104-29+. Fannie 3.0's also hit a record of 102-14.

Records aside, we haven't seen any follow through at these levels and markets are moving sideways in slightly less aggressive territory. But with 1.5983 10yr yields and MBS holding at the highs, we're not exactly looking at a panicked bounce weaker either.

Next piece of domestic data on the calendar is Chicago PMI at 9:45am.

* Headline GDP +1.9 vs +1.9 consensus, previously +2.2
*Consumer Spending +2.7 pct vs +2.9 pct previously

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 1.9 percent in the first quarter of 2012 (that is, from the fourth quarter to the first quarter), according to the "second" estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2011, real GDP increased 3.0 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.2 percent (see "Revisions" on page 3).

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, residential fixed investment, private inventory investment, and nonresidential fixed investment that were partly offset by negative contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the first quarter primarily reflected a deceleration in private inventory investment, an acceleration in imports, and a deceleration in nonresidential fixed investment that were partly offset by accelerations in exports and in PCE.

* Claims +383k vs 370k consensus
* 4wk moving ave rises to 374.5k from 370.75k
* Benefit exhaustion leads to fall in continuing claims, lowest since July 2008,

In the week ending May 26, the advance figure for seasonally adjusted initial claims was 383,000, an increase of 10,000 from the previous week's revised figure of 373,000. The 4-week moving average was 374,500, an increase of 3,750 from the previous week's revised average of 370,750.

The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending May 19, unchanged from the prior week's unrevised rate.

The advance number for seasonally adjusted insured unemployment during the week ending May 19 was 3,242,000, a decrease of 36,000 from the preceding week's revised level of 3,278,000. The 4-week moving average was 3,263,750, a decrease of 12,000 from the preceding week's revised average of 3,275,750.

* Private Payrolls +133k vs 148k consensus
* Last month revised down to 113k from 119k

Private-sector employment increased by 133,000 from April to May on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. The ADP National Employment Report, created by Automatic Data Processing, Inc. (ADP®), in partnership with Macroeconomic Advisers, LLC, is derived from actual payroll data and measures the change in total nonfarm private employment each month. The estimated gain from March to April was revised down modestly, from the initial estimate of 119,000 to a revised estimate of 113,000.