MBS began the day in weaker territory, though still in line with the lows from the narrow end of Friday's range. Treasuries chopped around in a reasonably narrow range overnight, with Bank of Japan easing and German economic sentiment (ZEW Index) cited as market movers, but the trading range fell well inside Friday's highs and lows, especially when Friday's early AM hours are considered. MBS and Treasuries continued to hold those narrow, weaker ranges in the first 2 hours of the domestic session with Existing Home Sales at 10am providing the impetus for a break to better territory. Stocks and bonds moved together at first (stock prices and bond yields moved lower). Even though stocks bounced off their lows around 10:30am, Bond markets managed to hold their gains through the Fed's scheduled TIPS buying operation, ultimately seeing both Treasuries and MBS make it back into positive territory on the day, though both are living on the edge between green and red since then.
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Econ Data Helps, But Resisting Breaks Into The Green
The weaker-than-expected Existing Home Sales data provided domestic bond markets with their best boost of the morning. True to recent form, equities participated in the move as well with S&P futures falling on the news. MBS rose several ticks, but remain mostly thwarted by Friday's closing levels at 104-04.
The post-data rally for bond markets looks like it's encountered its most meaningful push back just after 10:30am when equities markets managed to put in their most convincing bounce. The stock lever has been well-connected during earnings season and in the absence of more substantial bond-market-specific guidance. But true to form, bond markets aren't following the same magnitude ebbs and flows of stocks.
MBS are 2 ticks off their highs at 104-03 and 10yr yields have risen merely from 1.8488 to 1.8523. Meanwhile S&P's have risen 3 points from their lows. Morning ranges continue to be narrow, but we've been in slightly better shape thanks to data.
ECON: Existing Home Sales Weaker Than Expected, Inventories Shrink
- Existing Sales 4.94 Mln annual rate vs 5.1 consensus
- Down 1 pct vs +4.8 pct consensus
- Inventory Lowest since Jan 2001 in terms of units
- Inventory Lowest Since 2005 in terms of Months of Supply
- 24 pct distressed vs 22 pct in November.
Market Reaction: best volume pop of the domestic session, and thus far, a positive one for MBS and Treasuries. S&P's pulled back 3 points from their morning rally. 10yr yields fell about 1 bp, and MBS added 1-2 ticks. That move appears to be at least pausing for consideration now.
Lawrence Yun , NAR chief economist, said pent-up demand is sustaining the market. "Record low mortgage interest rates clearly are helping many home buyers, but tight inventory and restrictive mortgage underwriting standards are limiting sales," he said. "The number of potential buyers who stayed on the sidelines accumulated during the recession, but they started entering the market early last year as their financial ability and confidence steadily grew, along with home prices. Likely job creation and household formation will continue to fuel that growth. Both sales and prices will again be higher in 2013."
Bond Markets Slightly Weaker, Holding Narrow Range
The holiday-shortened week is getting off to a fairly slow start in terms of big-ticket market movers. There are ways--probably fairly accurate ones--to connect the overnight movement in Treasuries to various global economic headlines.
For instance, there was alternating bearishness and bullishness surrounding the Bank of Japan's mostly "as-expected" easing announcement, as well as a bit of response to Germany's ZEW Sentiment survey coming in at the best levels since May 2010. Additionally, a case could be made for a slightly bond-market-bearish reaction to the prospect of the House voting on legislation to extend the debt ceiling deadline on Wednesday.
But these look to be minor ebbs and flows against the broader backdrop, which is mostly informed by technical considerations at the moment. In that regard, nothing has changed from Thursday and Friday where the outer limits of the 3 week trend slightly lower in rates was tested on Thursday morning after the outer limits of a 3 month trend moving toward higher rates was tested at the beginning of the month/year.
Thursday's weakness was a clear, linear continuation of that counter-attack in the sense that bond markets held their ground at slightly better weak points than the last sell-off. In that context, this morning has been rather uneventful as trading has fallen well within the ranges suggested by the longer term trend higher in rates as well as the shorter term push back. More simply both MBS and Treasuries are inside the highs and lows seen Friday.
There's been no significant economic data in the US so far this morning and the morning's only moderately important report arrives shortly with Existing Home Sales at 10am. The consensus calls for a 5.1 million annual rate vs 5.04 million previously.
Fannie 3.0 MBS are down 3 ticks from Friday's close at 104-02 and 10yr yields are up 3bps at 1.87, after trading between 1.83 and 1.875 on Friday. We'd note that we're closer to testing the weaker end of the recent "counter-attack" trend, so any moves higher from here would be an increasing technical concern, with a firm bounce off overnight lows around 1.85/1.86 suggesting the next move would be well into the 1.9's.
Live Chat Featured Comments
philip mancuso : "agreed ted. just had a condo in the same bldg appraise for 60k less than sept. We're not seeing it. Also had about 10 previous borrowers refis shot down. some lost 100k year over year."
Ted Rood : "Just love it when CoreLogic says housing going up 7% a year and appraisals are flat AT BEST, or decreasing!"
Chris Kopec : "Ted, appraisals will be stuck in the Dark Ages for the foreseeable future."
Ted Rood : "Only 24% distressed?? Will this impact the property value increases we keep hearing about (but not seeing on appraisals on my end!)?"
Matthew Graham : "RTRS- US NAR SAYS 24 PCT OF U.S. DEC EXISTING HOME SALES WERE DISTRESSED SALES VERSUS 22 PCT IN NOV "
Matthew Graham : "RTRS- US DEC NATIONAL MEDIAN PRICE FOR EXISTING HOMES $180,800, +11.5 PCT FROM DEC 2011-NAR"
Matthew Graham : "looks like it's time for banks to start dusting off some of that shadow inventory... or they could let prices rise a bit more..."
Matthew Graham : "RTRS - US DEC INVENTORY OF HOMES FOR SALE 1.82 MLN UNITS, LOWEST SINCE JAN 2001; 4.4 MONTHS' WORTH, LOWEST SINCE MAY 2005 "
Matthew Graham : "RTRS- US DEC EXISTING HOME SALES -1.0 PCT VS NOV +4.8 PCT (PREV +5.9 PCT)-NAR "
Matthew Graham : "RTRS- US DEC EXISTING HOME SALES 4.94 MLN UNIT ANNUAL RATE (CONS 5.10 MLN) VS NOV 4.99 MLN (PREV 5.04 MLN)-NAR "
Mike Drews : "regardless of what treasuries do, MBS continues to leak."
Andrew Horowitz : "bouncing off 1.87 would be nice technically"
Matthew Graham : "No clearly delineated causes/effects this morning, but in a general sense, we're probably weaker this AM than we otherwise would be without the possibility that the House votes to extend the debt ceiling deadline. One minor exception overnight could be a much stronger than expected sentiment survey in Germany, but it only took bunds 3bps higher, so not the end of the world and US 10's were clear to hold their previous overnight ceiling at 1.88. "
Gus Floropoulos : "any reason for the weakness in the long bonds?"