MBS Pricing Snapshot

Fannie 4.0s are down from 103-11 to 103-07, enough to consider ourselves at the early edge of negative reprice risk for lenders who put out rates before 10:15am (roughly). The rate sheet print time is a bit of a moving target because we're not privy to the lag time between taking down marks and rate sheets hitting your inbox or pricing systems, but assume it's not instantaneous and know that prices were mostly intact through 9:58am.

10yr yields are up to 2.88, which is a potential support level. The Business Inventories data at 10am coincides with the move but isn't the source of it. As it stands, there isn't one specific source. Tradeflows were already in the process of reversing around 9:45am, and volume remains quite low.

As of right this moment, MBS are holding their ground at the lows of the day, so we'd emphasize that many lenders will wait for more weakness before repricing, but a few of them may be considering one if we don't bounce more convincingly.

Bond markets were dead quiet overnight, both in terms of volume and volatility. 10yr yields crossed the 8am starting line right where they finished yesterday's race but then began moving slightly higher ahead of the morning's economic data.

After the stronger-than-expected Retail Sales report, both MBS and Treasuries sold-off at a medium pace. 10's crested 2.87 (vs 2.85 opening levels) and Fannie 4.0s dropped from 103-11 to 103-06. The move ignored the volatile swing in Jobless Claims.

Selling momentum stalled at 5:45am and has reversed to somewhat positive effect. Fannie 4.0s are back up to 103-10, 1 tick lower on the day. Treasuries haven't clawed back quite as much but are still better off than their post data highs--currently just over 2.86.

The morning's next data--Business Inventories at 10am--is a 3rd tier market mover at best. The focus for the rest of the day is more appropriately placed on the 30yr Bond Auction. Although details are released at 1pm, it can affect trading beforehand. In general, bond markets are more conservative ahead of a Thursday Treasury auction, provided the auction is close to expectations.

- Claims 368k vs 320k forecast, 300k previously
- 4-wk avg 328,750 vs 322,750 previously
- Continued Claims 2.791 vs 2.75 million forecast
- Market Reaction: largely discounted due to the fact that claims have been horribly inconsistent into the end of the year between the government shutdown and holidays. Market participants don't read as much into these bigger deviations as the deviations would seem to suggest.

In the week ending December 7, the advance figure for seasonally adjusted initial claims was 368,000, an increase of 68,000 from the previous week's revised figure of 300,000. The 4-week moving average was 328,750, an increase of 6,000 from the previous week's revised average of 322,750. The advance seasonally adjusted insured unemployment rate was 2.1 percent for the week ending November 30, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending November 30 was 2,791,000, an increase of 40,000 from the preceding week's revised level of 2,751,000. The 4-week moving average was 2,793,500, a decrease of 4,750 from the preceding week's revised average of 2,798,250.

- Sales +0.7 vs +0.6 forecast, biggest rise since June
- Excluding Autos +0.4 vs +0.2 forecast
- Market Reaction: Bond markets weaker on this headline as Claims data (which was weaker) is easier to discount due to the holiday schedule causing more issues for the weekly report (whereas Sales is monthly).

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for November, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $432.3 billion, an increase of 0.7 percent (±0.5%) from the previous month, and 4.7 percent (±0.7%) above November 2012. Total sales for the September through November 2013 period were up 4.1 percent (±0.5%) from the same period a year ago. The September to October 2013 percent change was revised from +0.4 percent (±0.5%)* to +0.6 percent (±0.3%).

Retail trade sales were up 0.6 percent (±0.5%) from October 2013, and 4.6 percent (±0.7%) above last year. Auto and other motor vehicle dealers were up 10.9 percent (±2.1%) from November of 2012 and nonstore retailers were up 9.4 percent (±2.1%) from last year.