Following last week's post-Italian election rally, which left MBS and Treasuries at the week's best levels by Friday afternoon, this week has been a measured move back in the other direction. This can be viewed in a couple of ways. In simplest terms, domestic bond markets benefited from the Italy-inspired flight to safety and when Italian spreads began falling back to earth (read: German debt benchmarks), so too did domestic bond prices. The other stance--and really it could only be complementary to the first (because the first is incontrovertible)--is something like this: "after making it to the best levels in more than a month, MBS and Treasuries have pulled back slightly, getting in a more neutral--even defensive position ahead of big-ticket market movers coming up at the end of the week." Applying one or both of those frames of reference, this morning's movements are just more of the same post-Italy unwind and/or pre-NFP/ECB positioning. 10yr yields faithfully avoided a break of 1.95 so far and have ratcheted all the way back down to the mid 1.92's. MBS are a few ticks improved from their morning lows as well, which were incidentally at the analogous (to 1.95 in Treasuries) 103-06 price level. Both 1.95 in 10's and 103-06 in MBS were the first destination in the post-Italy rally on Monday 2/25.
MBS Pricing Snapshot
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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
ECON: Factory Orders Roughly In Line With Expectations
- Factory Orders -2.0 vs -2.2 Consensus
- Excluding Transportation = +1.3
- Market Reaction: no immediate reaction to the data itself, but improving just slightly as European markets weaken (lower Bund yields, falling Euro).
New orders for manufactured goods in January, down
two of the last three months, decreased $9.6 billion or
2.0 percent to $472.9 billion, the U.S. Census Bureau
reported today. This followed a 1.3 percent December
increase. Excluding transportation, new orders increased
Shipments, down two consecutive months, decreased
$1.0 billion or 0.2 percent to $481.8 billion. This
followed a slight December decrease.
Unfilled orders, down
following four consecutive
monthly increases, decreased
$2.0 billion or 0.2 percent
to $988.9 billion. This followed a 0.7 percent December
increase. The unfilled orders-to-shipments ratio was
6.27, up from 6.15 in December.
Inventories, up two consecutive months, increased
$3.2 billion or 0.5 percent to $618.4 billion. This
followed a slight December increase. The inventories-
to-shipments ratio was 1.28, up from 1.27 in December.
Bonds Weaker On Italy and ADP, Holding Ground Tentatively
You've heard of the "Stock Lever?" Now it's time to dust off the "Italy Lever." This is very much not a new phenomenon, but for the past week particularly, domestic bond markets have based more of their overnight movement on Italian credit spreads than anything else.
Today's overnight session was a carbon copy of yesterday's in many ways. US Treasuries were virtually flat during Asian hours and quickly began giving up ground as European markets opened up and Italian spreads started falling. Since yesterday morning, the gap between Italian and German 10yr debt has narrowed by 37 bps, accounting for more than half of the post-election spike. Lo and behold, US 10yr Treasuries have given back just over half of their post-election gains as well!
Treasuries found inspiration of their own after this morning's stronger-than-expected ADP Employment figures. 10's were already higher ahead of the report, but ratcheted another few bps higher to the mid 1.94's, essentially right on the upper limit of the early January range that we guessed might serve as a good impromptu "post-Italy/pre-NFP" range. Any higher than 1.95 today though, and that would start to look less like the case.
For their part, MBS opened about 4 ticks weaker and gave up another 3 following ADP, putting in lows at 103-06 in Fannie 3.0s. We're currently 1 tick off the lows at 103-06 (net -0-06 on the day). 10yr yields are up 3.6bps at 1.934 and S&P futures are up 7 points at 1544. The next and only remaining piece of scheduled domestic data today is Factory Orders (including Durable Goods revisions) at 10am.
ECON: ADP Payrolls Better Than Expected. Last Month Revised Higher
- ADP Private Payrolls at 198k vs 170k Consensus
- January Payrolls revised from 192k to 215k
- 198k payrolls is highest initial print since February 2012
- Market Reaction: 2 ticks lower in Fannie 3.0s, 1.5bps higher in 10yr Treasuries as of 8:21am
Private sector employment increased by 198,000 jobs from January to February, according to the February ADP National Employment Report®, which is produced by ADP®, a leading provider of human capital management solutions, in collaboration with Moody’s Analytics. The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. The January 2013 report, which reported job gains of 192,000, was revised upward by 23,000 to 215,000 jobs.
Live Chat Featured Comments
Matthew Graham : "RTRS- U.S. JAN FACTORY ORDERS EX-TRANSPORTATION +1.3 PCT"
Matthew Graham : "RTRS - U.S. JAN FACTORY ORDERS -2.0 PCT (CONSENSUS -2.2 PCT) "
Niccolo Satullo : "HARP 3.0 would be crazy. All the risk from HARP 2 is still on the lender, and there are no guarantees overall. "
Jason Harris : "Eric...I do not see HARP 3 occurring...way to messy...but we can dream"
Paul Carlin : "Industry dream only, congress is in stupid mode, no new rules right now. "
Eric Schuchaskie : "Harp 3.0 - is this going to happen?"
Victor Burek : "and the biggest fear is the cuts wont have a impact because people will realize we cut spending with no negative impact, so lets cut more"
Victor Burek : "the sequester isnt gonna have anywhere near the impact govt officials have said it would..just look at the stock market, all time highs...govt officials dont want any spending cuts thus the many heads of departments coming out talking about how bad the cuts will be"
Matthew Graham : "That may ultimately prove to be the case, but it wouldn't have as much of an effect on Private Payrolls. I don't know how government contractors are counted though. More to the point is that markets already know about the Sequester and so to some unknown extent, it's already being (or has been) priced-in to current levels."
MC : "Wouldn’t these numbers seem superficial given the looming “Sequester affect” that will eventually come into play? Seems like a false positive given all the unfixed issues at hand."
Matthew Graham : "additionally, you can't compare headline to headline because NFP includes government jobs. Use the private payrolls component of NFP."
Matthew Graham : "again, ADP's claim is that their new headlines attempt to predict the 2nd revision to NFP"
Victor Burek : "last month, adp was 192k and nfp was only 157k..thats off by almost 25%"
Matthew Graham : "revisions included, but remember the new methodology ostensibly makes ADP more similar to the revised NFP private payrolls figure. Markets are still feeling that out, but it's the best forward indicator they have at the moment. "
Victor Burek : "is that graph after both nfp and adp has done revisions , or is it their first guess?"
Matthew Graham : "ADP vs NFP over time: http://tinyurl.com/ankgtx5"
B-C : "that's a pretty big drop for an ADP # that is never accurate?"
Dan Clifton : "man, here we go. all of the hard fought gains from 2 weeks are going to be unwound in 5 minutes"
Matthew Graham : "RTRS - US ADP PAYROLL CHANGE HIGHEST SINCE FEB 2012 "
Matthew Graham : "RTRS- US ADP JANUARY PAYROLL CHANGE REVISED TO 215,000 FROM +192,000 "
Matthew Graham : "RTRS- REUTERS CONSENSUS FORECAST FOR ADP PAYROLL CHANGE FOR FEB WAS FOR INCREASE OF 170,000 JOBS "
Matthew Graham : "RTRS- ADP NATIONAL EMPLOYMENT REPORT SHOWS U.S. EMPLOYMENT INCREASED BY 198,000 PRIVATE SECTOR JOBS IN FEBRUARY"
Oliver S. Orlicki : "1.92. Creeping back into the range again. 1.84 seems so far away."