Bond markets began today's rally yesterday afternoon following the 30yr Bond auction. Whether the bounce back is more attributable to strategic bargain buying of potentially oversold Treasuries or a simple relief rally following the auction cycle and technical bounce, we're not sure, but there's probably some of both in play. Adding credence to the strategic bargain buying piece, we saw Asia come in as buyers overnight after weaker trade data out of China. That helped accelerate the corrective bounce already in the works and ushered 10yr yields back to Wednesday's levels. We've spoken a few times about not losing sight of the forest for the trees (aka, not letting intraday bursts of positivity change the longer term outlook). This is pertinent here as we consider how we felt on Wednesday. Yields had topped out at 1.64 on Tuesday and then whipsawed to 1.663 intraday on Wednesday, ultimately going out at 1.6505. Current yields are also at 1.6505 RIGHT NOW. To us... that seems sideways and indecisive with a brief moment of panic and relief accounting for yesterday. We haven't yet seen any conclusive proof that the broader trend of selling is over, but are open to that possibility.
MBS Pricing Snapshot
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Pricing as of 11:06 AM EST
Morning Reprice Alerts and Updates
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ECON: Growth Estimates Revised Downward - Philly Fed Survey
The outlook for growth in the U.S. economy looks weaker now than it did three months ago, according to 48 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters expect real GDP to grow at an annual rate of 1.6 percent this quarter, down from the previous estimate of 2.5 percent. Over the next three quarters, they expect GDP growth to average 2.1 percent, down from the previous average of 2.6 percent. On an annual-average over annual-average basis, the forecasters also predict slower real output growth over the next four years. The forecasters see real GDP growing 2.2 percent in 2012, down from their prediction of 2.3 percent in the survey of three months ago. The forecasters predict real GDP will grow 2.1 percent in 2013, 2.7 percent in 2014, and 3.1 percent in 2015, each somewhat lower than their respective predictions in the last survey.
Projections for weaker conditions in the labor market accompany the outlook for real output. Unemployment is projected to be an annual average of 8.2 percent in 2012, before falling to 7.9 percent in 2013, 7.3 percent in 2014, and 7.0 percent in 2015. The estimates for unemployment are slightly higher than the projections in the last survey.
On the employment front, the forecasters have revised downward their estimates of the growth in jobs over the next four quarters. The forecasters see nonfarm payroll employment growing at a rate of 125,000 jobs per month this quarter and 135,300 jobs per month next quarter. The forecasters’ projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 154,600 in 2012 and 143,200 in 2013, as the table below shows. (These annual-average estimates are computed as the year-to-year change in the annual-average level of nonfarm payroll employment, converted to a monthly rate.)
Bond Markets Significantly Stronger Overnight As Relief Rally Continues
Bond markets hinted at the possibility of a relief rally following yesterday's 30yr Bond Auction, but stopped short of breaking through the stronger levels from earlier that morning. The overnight session kicked off with much weaker-than-expected trade data out of China. This sparked some decent buying interest in Treasuries as did the European bond market rally that began a few hours later. All told, 10yr notes walked in the door just under 1.64 after going out at just over 1.69 yesterday.
The improvements allowed MBS settlement for Fannie and Freddie 30yr fixed coupons to pass almost imperceptibly. In fact, if you didn't look at Treasuries and ask yourself why MBS weren't more improved than a mere tick or two from yesterday's closing level, you might never know that you're looking at prices for September coupons as opposed to the August coupons quoted yesterday. This is why Fannie 3.0s are showing an improvement of roughly 10 ticks so far this morning despite appearing to be relatively even with yesterday's closing levels.
There's not much else on tap today at home or abroad, leaving markets to "trade it out." So far, so good, and while we're definitely not out of the woods yet, we're getting closer. Still, at current levels, we have a long way to go before being able to consider recent weakness to be merely a head-fake.
ECON: Import Prices Lower Than Expected. Exports Higher
* Import Prices -0.6 Pct vs +0.1 pct consensus
* Export Prices +0.5 Pct vs 0.0 pct consensus
* Annual import prices -3.2 pct, most since Oct 2009
U.S. import prices declined 0.6 percent in July, the U.S. Bureau of Labor Statistics reported today, after
decreasing 2.4 percent in June and 1.5 percent in May. In each of the past three months, falling prices for
both fuel and nonfuel imports contributed to the overall drop. In contrast, U.S. export prices rose 0.5 percent
in July following a 1.7 percent decline the previous month.
Live Chat Featured Comments
Victor Burek : "i hear ya gus..but not for the past 10 weeks"
Gus Floropoulos : "all im saying is as a trader, its always risky to hold into the weekend."
Victor Burek : "thats a solid trend until it isnt"
Victor Burek : "i think it will be 11 for 11 come this monday"
Andy Pada : "just so we are clear: VB index of locking on Monday has been correct 10 out of the last 10 weeks, i.e., Monday pricing has been better than Friday pricing."
Matt Hodges : "closing this month, suggest locking today"
Gus Floropoulos : "floating into the weekend is always risky"
Matt Hodges : "i understand the logic, but feel much more will be gained next week"
Matthew Graham : "maybe not exclusively locky, but simply more so than usual for a Friday"
Gus Floropoulos : "agreed"
Matthew Graham : "see...for price improvements like that, and the cloudy outlook, I'm feeling locky from a pure risk management standpoint."
Clayton Sandy : "My rates improved 25 to 50 bps on most products. Gained almost 75bps on my 20 year though. "
Matthew Graham : "I'm gonna be mildly concerned until I'm not concerned any more."
Matthew Graham : "no. just that the broader trends still concern me and today isn't enough to fix it."
Andy Pada : "I think MG didn't like this week's action"
Matt Hodges : "you don't like tapebombs over weekend?"
Victor Burek : "why is that mg?"
Matthew Graham : "I'm definitely feeling much more locky for a Friday than I am on most Fridays"
Victor Burek : "i am staying true to my index"
Matthew Graham : "I haven't looked at rates yet today"
Andy Pada : "Interesting call for today. Do we lock in given the recent past or stay true to the VB index."
Matt Hodges : "still, that will give bond yields more room to sink "
Matthew Graham : "I'm not even sure if an average of 125k in Q3 and 135k in Q4 would make QE3 less likely or MORE likely. Those are pretty weak, stagnant figures."
Matthew Graham : "RTRS- PHILLY FED SURVEY - PAYROLLS SEEN GROWING AVERAGE 135,300/MONTH IN Q4 VS PVS FORECAST 172,600/MONTH "
Matthew Graham : "RTRS - PHILLY FED SURVEY - NON-FARM PAYROLLS SEEN GROWING AVERAGE 125,000/MONTH IN Q3 VS PVS FORECAST 170,000 "
Matthew Graham : "Couple highlights from that forecasters survey:"
rford : "Yessir, go green!"
Matthew Graham : "RTRS - U.S. JULY YEAR-OVER-YEAR IMPORT PRICES -3.2 PCT, LARGEST DECLINE SINCE OCT 2009; EXPORT PRICES -1.2 PCT "
Matthew Graham : "RTRS- U.S. JULY EXPORT PRICES +0.5 PCT (CONSENSUS 0.0 PCT) VS JUNE -1.7 PCT (PREV -1.7 PCT) "
Victor Burek : "what a relief it is"
Andrew Horowitz : "relief rally started after 30 yr auction"
Victor Burek : "thats helping..but i think the run up was just over done"
Scott Valins : "gm all... China exports causing this or an amalgam of things?"
Joe Prine : "gm all and happy green friday"
Oliver S. Orlicki : "Creeping back down"
Oliver S. Orlicki : "1.64"