After adding half a point yesterday, Fannie 3.5 MBS are up another half point today (Fannie 3.5s as of 11:55am) as the ill effects of the government shutdown and debt ceiling drama are priced out of bond markets. Both MBS and Treasuries have moved precisely to the narrow ranges that prevailed before the onset of volatility inspired by the fiscal issues. 10yr yields, at that time, favored a range of 2.59 to 2.67 and these levels just happen to bookend today's trading range as well. This could merely be a coincidence or it could speak to the fiscal issues being a diversion that temporarily challenged a narrow range otherwise content to wait for the next big trading cue from the jobs report we never got on 10/4. As of now, we're still waiting to find out when NFP will be rescheduled.
MBS Pricing Snapshot
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Pricing as of 11:03 AM EST
Morning Reprice Alerts and Updates
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ECON: Philly Fed Index Stronger Than Expected
- Business conditions 19.8 vs 15.0 forecast, 22.3 previous
- 6-mo outlook 60.8 vs 58.2 previous
- New Orders 27.5 vs 21.2 previous
- Employment Index 15.4 vs 10.3 previous
-Market Reaction: Not much so far. Slight move weaker right at 10am, but recovered and back to pre-data levels now.
Manufacturing growth in the region continued in October, according to firms responding to this month’s Business Outlook Survey. The survey’s broadest indicators for general activity, new orders, shipments, and employment were positive, signifying growth. The survey's indicators of future activity suggest continued optimism about growth over the next six months.
Indicators Suggest Continuing Expansion
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, edged down from 22.3 in September to 19.8 this month (see Chart). The index has now been positive for five consecutive months. The percentage of firms reporting increased activity this month (36 percent) was greater than the percentage reporting decreased activity (16 percent).
The demand for manufactured goods, as measured by the current new orders index, increased 6 points, to 27.5, its highest reading since March 2011. Shipments continued to expand: The index fell 1 point to 20.4, following a 22 point increase last month. The diffusion indexes for inventories, delivery times, and unfilled orders were all positive and higher than last month.
Labor market indicators showed improvement this month. The current employment index increased 5 points, to 15.4, its highest reading since May 2011. The percentage of firms reporting increases in employment (23 percent) exceeded the percentage reporting decreases (8 percent).
Bond Markets Back to Pre-Shutdown Levels Following Debt Deal
After gaining half a point yesterday, Fannie 3.5s are already 3/8ths of a point higher this morning. Most of those gains were already intact by the time MBS began trading, and came courtesy of last night's passage of the Senate-drafted debt deal that dominated yesterday's headlines.
The promise of said deal indirectly fueled an afternoon rally in Treasuries and broader bond markets. The pace had leveled off by the close, though retained a mildly positive bias through Asian trading hours. When Europe came online for the day, overnight Treasuries received another shot of bullish adrenaline, pushing 10yr yields back down to 2.61's by 4am.
There has been some ebb and flow since then, but 10's have gone no higher than 2.634 and the domestic session has been uneventfully positive so far. Jobless Claims data was mostly passed over as traders give it time to calm down and exhibit more consistency before reading in to the numbers. Philly Fed data is coming up at 10am and has a better chance to illicit a reaction.
ECON: Jobless Claims Higher Than Expected
- Claims 358k vs 335k forecast
- Continued Claims 2.859 mln vs 2.915 mln forecast
- Market Reaction: Limited (because who even knows what to believe from this data set any more) but slightly positive for bond markets.
In the week ending October 12, the advance figure for seasonally adjusted initial claims was 358,000, a decrease of 15,000 from the previous week's revised figure of 373,000. The 4-week moving average was 336,500, an increase of 11,750 from the previous week's revised average of 324,750.
The advance seasonally adjusted insured unemployment rate was 2.2 percent for the week ending October 5, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending October 5 was 2,859,000, a decrease of 43,000 from the preceding week's revised level of 2,902,000. The 4-week moving average was 2,875,750, an increase of 17,750 from the preceding week's revised average of 2,858,000.
Live Chat Featured Comments
Matthew Graham : "RTRS - PHILADELPHIA FED BUSINESS CONDITIONS OCTOBER 19.8 (CONSENSUS 15.0) VS SEPT 22.3 "
Caroline Roy : "got a USDA shipping this morning. At least MT was only at 24-48 hrs before hand. hoping it won't be too bad. got a customer living in a camper waiting to close! and its been snowing!"
Christopher Stevens : "just rec'd notice from Wells that they will continue with temporary exception of no transcripts until they assess the IRS backlog."
Matthew Graham : "my thoughts haven't changed overall. The shutdown fallout = "noise," and real momentum comes from the return of data. In my mind, as was the case before the shutdown, NFP continues to be the next big cue."
Christopher Stevens : "DD- NFP will have a lot to say about that"
Don Davidson : "ok MG, I need you to rub the dust off your crystal ball. Are we in for a positive ride or should we start to batten down the hatches?"
Matthew Graham : "RTRS- FED'S FISHER SAYS SEEING SIGNS OF U.S. RE-ENTERING HOUSING BUBBLE; CAUTIONS ON FED'S MBS PURCHASES"
Matthew Graham : "RTRS- U.S. FED'S FISHER REPEATS BEST TO 'STAY THE COURSE' ON BOND BUYING AT OCTOBER FOMC MEETING "
Jason Anker : "$41.66 per month based on your numbers 100k 50 bps"
joon choi : "25% coverage is the lender protection level"
joon choi : "no, 100k X 50bps divide by 12 for monthly"
Gaius Rossini : "/12 of course."
Gaius Rossini : "does that mean the borrower pays 100K*25%*50bps? Or does the borrower still pay 100K*50bps?"
Gaius Rossini : "For example, say the MI rate card I'm looking at says I need 25% coverage for this 100K loan. Say the premium is 50 bps."
Matthew Graham : "cage lining for the lorikeet CS?"
Christopher Stevens : "Yes MG I am not sure what to call those stories on back page "
Matthew Graham : "that was more of an op-ed, but not off base"
Christopher Stevens : "WSJ article this morning stated taper may not occur until March. Difficult to taper this year with mixed economic data due to shutdown and the uncertainty that will come in January with another battle looming. March is when Yellen if confirmed would have her first chance to taper."
Matthew Graham : "http://www.bls.gov/ last update 9/26"
joon choi : "mg, any news on the release of olf datt"
Jeff Anderson : "GM, all. I see you 102 and 105. So we're back o where were heading before the bozos in DC got 2 weeks of photo ops. Nice."
Matt Hodges : "i understand the TIL was printed after corrections; the GFE is wrong"
Victor Burek : "shouldn't it only be the 3 day wait due to higher apr"
Matt Hodges : "anyone here have experience with lender cures on ARM disclosures? I was asked to inquire about an ARM which failed to disclose the potential higher rate on page 1 of the gfe... any thoughts.. .and, no, it's not my loan"
Matthew Graham : "correct Vic. I hear it's a big hassle to deal with and they know it. The expectation is that they'd be paid eventually."
Victor Burek : "Bloomberg was saying, it was doubtful many federal workers applied for claims as they knew they would receive back pay"
Matthew Graham : "RTRS- US CONTINUED CLAIMS FELL TO 2.859 MLN (CONS. 2.915 MLN) OCT 5 WEEK FROM 2.902 MLN PRIOR WEEK (PREV 2.905 MLN) "
Matthew Graham : "RTRS- US JOBLESS CLAIMS FELL TO 358,000 OCT 12 WEEK (CONSENSUS 335,000) FROM 373,000 PRIOR WEEK (PREVIOUS 374,000) "