What had been a tentative move off the lows at first soon turned into a more decisive swing back into positive territory. Earlier weakness was largely a factor of European markets. UK 10yr's rallied an impressive 10bps in an even more impressive 4 minute time frame (following Bank Of England Minutes), but the sharp bounce back to previous levels was the beginning of the end for US Treasuries which were already trending higher in yield during European hours. Peripheral debt markets improved--typically bad for German Bunds and US Treasuries. 10's and MBS hit New York in fairly rough shape. Yields matched the 10-month highs seen on 2/14, but managed to dig their heels in there. Stocks opened weaker and bond markets have been improving ever since, helped along most notably by some hefty tradeflows following the 11am Fed buying operation as well as the European close (as EU markets seemed to be holding US bond markets back a bit until then. Things aren't likely to move too far in either direction ahead of the 2pm FOMC Minutes. (Note the timestamp on the price table below is for 11:07am. Fannie 3.0s have since moved up a few ticks to 103-27).
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing
is available via MBS Live.
Pricing as of 11:07 AM EST
Morning Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts
and updates issued via email and text alert to MBS Live subscribers
Bond Markets Testing Limits of Weakness Pre-FOMC
With the exception of a few moments on 2/14, 10yr yields have been no higher than they are right now since the beginning of April 2012. 2.049% was tested several times in the overnight session after a flat open in Asia gave way to weakness in European markets. The latter was initially offset by dovish minutes from England's Central Bank, but ultimately trumped by tightening peripheral spreads and a weak German Bund auction. An ECB governor noted that that the Central Bank would not conduct new easing simply to benefit Germany or core countries.
Communication from Central Banks will continue to be the focus of the day (and week for that matter), as this afternoon's Minutes from the latest FOMC meeting loom large at 2pm. Between now and then, bond markets are certainly already on the back foot as they hook up with equities for a bit of a "risk-on" trade following this morning's data.
Equities futures just made it back over 4pm levels, climbing mostly steadily since internal components of this morning's Housing Starts data were bullish on Single-Family starts, and Building Permits were the highest since mid-2008. This has 10's back up against the ceiling at 2.05, and Fannie 3.0 MBS back in line with opening lows at 102-21. We're expecting the environment to continue to be tougher than not ahead of the Fed Minutes.
ECON: Producer Prices Slightly Weaker, Core As-Expected
- January PPI +0.2 vs +0.4 consensus
- Core PPI +0.2 vs +0.2 consensus
- Energy Prices Fell (gas -2.1, heating oil -0.5)
- Food +0.7, Labor Dept. says 'more than 3 quarters of the rise in January PPI is attributable to increase in food prices.'
The Producer Price Index for finished goods advanced 0.2 percent in January, seasonally
adjusted, the U.S. Bureau of Labor Statistics reported today. Prices for finished goods declined
0.3 percent in December and 0.4 percent in November. At the earlier stages of processing, the
index for intermediate goods was unchanged in January, and crude goods prices increased 0.8
percent. On an unadjusted basis, the finished goods index advanced 1.4 percent for the 12
months ended January 2013.
ECON: Housing Starts Weaker, But Permits, Single Family Higher
- Headline Starts -8.5 vs +15.7 last time
- 890k Unit rate vs 925k Consensus
- Permits 925k vs 915k Consensus
- Single-Fam Starts +0.8 to 613k. Highest since June 2008
Privately-owned housing starts in January were at a seasonally adjusted annual rate of
890,000. This is 8.5 percent (±11.3%)* below
the revised December estimate of 973,000, but is 23.6
percent (±13.4%) above the January 2012 rate of 720,000.
Single-family housing starts in January were at a rate of 613,
000; this is 0.8 percent (±11.7%)* above the revised December fig
608,000. The January rate for units in buildings with five units or more was 260,000
Privately-owned housing units authorized by building permits in January were at a seasonally adjusted annual rate of
925,000. This is
1.8 percent (±0.9%) above the revised D
ecember rate of 909,000 and is 35.2 percent (±1.5%) above the January 2012 estimate of
Single-family authorizations in January were at a rate of 584,
000; this is 1.9 percent (±0.8%) above the revised December figur
573,000. Authorizations of units in buildings with five units or more were at a rate of 311,000 in January.
Live Chat Featured Comments
Gus Floropoulos : "boy i sure hope so"
Matt Hodges : "stored energy to push higher in MBS pricing, Gus?"
Gus Floropoulos : "range is extremely narrow, momentum feels like its against us, but historically when we go higher it happens in a vicious fashion....I'm in the opinion that the consolidation is more of a resistance of moving higher on yields"
Gus Floropoulos : "actually find it very relaxing as long as we are within a range, worries start if we pop higher, fears go away if we break lower"
Gus Floropoulos : "depends which side of the trade you are on....don't need me to tell you....1.95-2.05 (give or take"
B-C : "what range is that Gus?"
Gus Floropoulos : "range bound....zzzzzzzzzzzzzz.......zzzzzzzz"
Victor Burek : "hope it isnt"
Matthew Graham : "theoretically. But if it's that cut and dry, it's already baked in"
Victor Burek : "that should benefit mbs"
Victor Burek : "but if sequester cuts do happen, been reported that defense will be cutting thousands and thousands of jobs, and with QE tied to unemployement rate shoudl indicate easing continue for longer"
Matthew Graham : "yeah, it doesn't lend itself to easy "if/then" prediction in the same way, say, the Fiscal Cliff or debt-ceiling deal did. I think it's generally assumed that we'll cross into March without any major decisions on spending having been made. Congress is on Vacay right now anyway, right? Seems like a good time to be out."
Scott Rieke : "Well, that's the game. Knowing is what takes place after. Money is made by taking a side and dealing with the risk"
William Hansen : "like I said no one really knows. some bulls some bears"
Matthew Graham : "that could go either way too... On the one hand, it could be a situation where there's some sort of "well... this isn't so bad..." This could be greatly compounded by increasing strength elsewhere in the economy due to less Fiscal uncertainty ("hey! the government actually did what they said they would!" kinda stuff). On the other hand, the desultory effects could sap broader confidence, especially if economic metrics take a noticeable hit and if agencies that publish them make note of that "
Scott Rieke : "I should say less government spending will at first (6mo) hurt MBS as the new reality of the spigot turning off hurts overall GDP, but if coupled with tax reduction, should spurn new growth with stability"
Matthew Graham : "simply looking down at our watches on March 1st and noting "Ok! It's officially sequestration time," likely does nothing. The metrics in economic data that follow would be more important. And in that sense, the effects are more likely to be gradual and choppy, prone to over/under-estimations by forecasters. I think it would run a risk of creating a very different reality vs perceptions."
William Hansen : "I orginally believe it would help. After speaking with others not sure anymore. What does MG think. "
Victor Burek : "less govt spending should cause less borrowing, so should benefit mbs"
William Hansen : "i have a question. Would the sequester help or hurt the MBS? "
Brett Boyke : "http://www.bloomberg.com/news/2013-02-20/limited-mortgage-finance-role-for-u-s-government-gains-support.html"
Matthew Graham : "RTRS- U.S. JAN PPI EXFOOD/ENERGY +0.2 PCT (CONS +0.2 PCT) VS DEC +0.1 PCT "
Matthew Graham : "RTRS- U.S. JAN PPI +0.2 PCT (CONSENSUS +0.4 PCT), VS DEC -0.3 PCT"
Matthew Graham : "RTRS- US JAN SINGLE-FAMILY STARTS +0.8 PCT TO 613,000 UNIT RATE, HIGHEST RATE SINCE JULY 2008; MULTIFAMILY -24.1 PCT TO 277,000 UNIT RATE "
Matthew Graham : "RTRS- US JAN HOUSING PERMITS 925,000 UNIT RATE, HIGHEST RATE SINCE JUNE 2008, (CONSENSUS 915,000) VS DEC 909,000 UNIT RATE "
Matthew Graham : "RTRS- US JAN HOUSING PERMITS +1.8 PCT VS DEC 1.0 PCT "
Victor Burek : "permits higher though"
Matthew Graham : "RTRS- US JAN HOUSING STARTS 890,000 UNIT RATE (CONSENSUS 925,000) VS DEC 973,000 (PREV 954,000) "
Andy Pada : "weak #"
Matthew Graham : "RTRS- US JAN HOUSING STARTS -8.5 PCT VS DEC +15.7 PCT (PREV +12.1 PCT) "