MBS Pricing Snapshot

- +0.3 vs +1.1 forecast
- Highest index level in 3 years (FTHB tax credit expiration mini-boom in early 2010)

Pending home sales improved slightly in April and continue to be well above a year ago, according to the National Association of Realtors®. Gains in the Northeast and Midwest were offset largely by declines in the West and South.

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, rose 0.3 percent to 106.0 in April from 105.7 in March, and is 10.3 percent above April 2012 when it was 96.1; the data reflect contracts but not closings.

Home contract activity is at the highest level since the index hit 110.9 in April 2010, immediately before the deadline for the home buyer tax credit. Pending sales have been above year-ago levels for the past 24 months.

Lawrence Yun, NAR chief economist, said a familiar pattern has developed. “The housing market continues to squeak out gains from already very positive conditions. Pending contracts so far this year easily correspond to higher closed home sales in 2013,” he said. Total existing-home sales are expected to rise just over 7 percent to about 5 million this year.

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing fixed mortgage rates following long-term government bond yields higher. The average 30-year fixed moved up nearly half a percentage point since the beginning of May when it averaged 3.35 percent. Regardless, mortgage rates remain low historically helping to keep home-buyer affordability high, which should continue to aid home sales and construction as the housing market continues to recover.

30-year fixed-rate mortgage (FRM) averaged 3.81 percent with an average 0.8 point for the week ending May 30, 2013, up from last week when it averaged 3.59 percent. Last year at this time, the 30-year FRM averaged 3.75 percent

15-year FRM this week averaged 2.98 percent with an average 0.7 point, up from last week when it averaged 2.77 percent. A year ago at this time, the 15-year FRM averaged 2.97 percent.

Compared to yesterday's trading range, Treasuries were docile overnight, holding between 2.1 and 2.145 before weakening just a bit further at the start of the domestic session. If anything, Asian hours were moderately constructive for domestic bond markets with the tide turning during European hours, resulting in the weakest levels of the morning seen just before the 8:30AM data.

As expected (or hoped, perhaps), GDP was a non-event, coming in too close to the previous release to be relevant. The focus, therefore, remained on Jobless Claims, which notched moderately higher to 354k vs 340k expectations. This was enough to get the ball rolling in the other direction though MBS and Treasuries both leveled-off right as they reached yesterday's strongest levels.

MBS are actually 1 tick into the green now with Fannie 3.0s at 100-31 and 3.5s at 103-30. 10yr yields are perfectly unchanged at 2.119 (vs 5pm levels). Equities are moving up slightly in their first 10 minutes, but this hasn't had any effect on bond markets so far. The next data arrives at 10am with Pending Home Sales (not a major consideration, but can have a small impact), followed only by the 7yr Auction at 1pm.

- GDP +2.4 vs +2.5 consensus
- Corporate Profits -1.9 vs +2.0 consensus
- Most GDP internals in line with 'Advance' release

Market Reaction: Likely limited, as far as this release is concerned, with the focus being more on Jobless Claims which managed to deviate more from its consensus

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.4 percent in the first quarter of 2013 (that is, from the fourth quarter to the first quarter), according to the "second" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.4 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, real GDP increased 2.5 percent. With the second estimate for the first quarter, increases in private inventory investment, in exports, and in imports were less than previously estimated, but the general picture of overall economic activity is not greatly changed

Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) decreased $43.8 billion in the first quarter, in contrast to an increase of $45.4 billion in the fourth. Current-production cash flow (net cash flow with inventory valuation adjustment) - - the internal funds available to corporations for investment -- increased $110.9 billion in the first quarter, in contrast to a decrease of $89.8 billion in the fourth.

- 354k vs 340k forecast, 344k previously
- 4-week average up to 347,250 from 340,500

- Market Reaction: mildly positive for bond markets so far, but only inasmuch as it has stemmed the tide of advancing losses this morning.

In the week ending May 25, the advance figure for seasonally adjusted initial claims was 354,000, an increase of 10,000 from the previous week's revised figure of 344,000. The 4-week moving average was 347,250, an increase of 6,750 from the previous week's revised average of 340,500.

The advance seasonally adjusted insured unemployment rate was 2.3 percent for the week ending May 18, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending May 18 was 2,986,000, an increase of 63,000 from the preceding week's revised level of 2,923,000. The 4-week moving average was 2,986,500, a decrease of 11,500 from the preceding week's revised average of 2,998,000.