MBS Pricing Snapshot

- Sales at 4.92 mln annual rate vs 4.90mln consensus
- Inventory at 1.74 mln units, lowest since 1999
- 4.2 months of inventory at current pace, lowest since 4/2005
- 23 pct of existing home sales were distressed

Existing-home sales edged up in January, while a seller's market is developing and home prices continue to rise steadily above year-ago levels, according to the National Association of Realtors . Sales rose in every region but the West, which is the region most constrained by limited inventory.

Total existing-home sales , which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 0.4 percent to a seasonally adjusted annual rate of 4.92 million in January from a downwardly revised 4.90 million in December, and are 9.1 percent above the 4.51 million-unit pace in January 2012.

Lawrence Yun , NAR chief economist, said tight inventory is a major factor in the market. "Buyer traffic is continuing to pick up, while seller traffic is holding steady," he said. "In fact, buyer traffic is 40 percent above a year ago, so there is plenty of demand but insufficient inventory to improve sales more strongly. We've transitioned into a seller's market in much of the country."

- Business Conditions -12.5 vs +1.0 consensus
- New Orders -7.8 vs -4.3 consensus
- Employment 0.9 vs -5.2 previously
- Biz conditions, New Orders, Prices Paid, all lowest since June

Manufacturers responding to the February Business Outlook Survey reported declines in activity this month. Following reported growth in late 2012, indicators for general activity and new orders have now registered negative readings for the past two months. However, indicators for shipments and employment were slightly positive this month. The survey’s broad indicators of future activity edged higher this month.

After rallying back from yesterday's FOMC Minutes whipsaw, bond markets improved gradually at the start of the overnight session as Asian stocks sank. The "risk-off" tone continued into European hours with slightly weaker PMI data and major tradeflow considerations giving German Bunds a big boost around 3:30am NY time.

US 10's followed that more abrupt EU market movement by breaking through the recently insidious resistance at 1.9979 (uncontested since 2/13). Stronger Spanish debt auctions later in the morning helped turn the rally away in core debt markets with the onus left to domestic data for the next guidance.

After crossing 8am just a few ticks better than yesterday's latest levels MBS and Treasuries have both improved following weaker-than-expected Jobless Claims data. It's also worth noting that the gains make for a fairly linear rally from yesterday's overnight levels, so the 'extension of strength' explanation can fit here as well.

But to consider such an 'extension,' is to acknowledge the role played by "trends" in the current environment. That conversation wouldn't be complete without mentioning a few other trends. The most ancient among these is the uptrend in yields going back to mid-July which suggests firm resistance at 1.963 (or at least a high level of significance if 1.963 is broken). On the horizontal front, 1.95 is the center of a messier range of yields that have provided resistance and support in the recent past (as long as you give it about half a bp in either direction).

For MBS, 103-00 is the clear overhead pivot. With that in mind, we're currently coming off our 11th or 12th bounce at 102-31+ since 8:30am. Most of the data has printed for the morning, but Existing Home Sales and Philly Fed both arrive at 10am, and are essentially the last scheduled reports of the week.

- Manufacturing PMI at 55.2 vs 55.5 Consensus
- Output at 58.1 vs 56.8 Consensus

• Strongest rise in output since March 2011
• New order growth remains strong, but slower than January
• Job creation at three-month low
• Input price inflation slows, but remains strong
• Data collected 12–20 February.

The Markit Flash U.S. Manufacturing Purchasing Managers’ Index signaled further expansion of the U.S. manufacturing sector in February, although the rate of growth slowed slightly on January’s nine -month peak. At 55.2, down from 55.8, the ‘flash’ PMI reading, which is based on around 85% of usual monthly replies, continued to suggest a strong improvement in overall manufacturing business conditions.

- CPI +0.0264 vs +0.1 consensus, Core +0.2514 vs +0.02 Consensus

The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in January on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.6 percent before seasonal adjustment.

The index for all items less food and energy increased 0.3 percent in January. This increase offset another decline in the gasoline index and resulted in the seasonally adjusted all items index being unchanged, as it was last month. Increases in the indexes for shelter and apparel accounted for much of the increase in the index for all items less food and energy, with advances in the indexes for recreation, medical care, and airline fares also contributing.

- Claims up to 362k vs 355k consensus, 342k previous
- Constinued Claim

In the week ending February 16, the advance figure for seasonally adjusted initial claims was 362,000, an increase of 20,000 from the previous week's revised figure of 342,000. The 4-week moving average was 360,750, an increase of 8,000 from the previous week's revised average of 352,750.

The advance seasonally adjusted insured unemployment rate was 2.4 percent for the week ending February 9, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending February 9 was 3,148,000, an increase of 11,000 from the preceding week's revised level of 3,137,000. The 4-week moving average was 3,186,250, a decrease of 6,750 from the preceding week's revised average of 3,193,000.