MBS Pricing Snapshot

MBS have been doing a decent job of holding onto sideways support at their previous lows of 104-16. They're not doing a terrible job of trying to stay there, but have slipped a bit in recent minutes after increasing pressure from broader bond markets.

The tenor there is "up and up" in terms of yields with 10's continuing a steady leak higher all morning--and very much in line with yesterday's post-FOMC series of highs. 10's are currently up another 3.5 bps vs yesterday at 1.7368.

MBS continue to hold up relatively better than Treasuries with 3.0s down only 7 ticks on the day, at the moment, at 104-17 after getting a decent bounce off the 104-14 lows of the morning just now.

For lenders that priced around the 9:30 time frame, we haven't seen sufficient losses to warrant excessive negative reprice risk. That said, negative reprices can't be ruled out completely in this situation as there's a clearly negative trend in play from yesterday afternoon.

The risks are more developed with a sustained break below 104-16.

Next up: 30yr auction at 1pm

- Inventories +0.4 vs +0.4 consensus, +0.7 previous
- Sales -0.4 vs +1.2 previous

The U.S. Census Bureau announced today that the combined value of distributive trade sales and manufacturers’ shipments for October, adjusted for seasonal and trading-day differences but not for price changes, was estimated at $1,257.7 billion, down 0.4 percent (±0.2%) from September 2012 and up 3.1 percent (±0.4%) from October 2011.

Manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,619.2 billion, up 0.4 percent (±0.1%) from September 2012 and up 5.7 percent (±0.4%) from October 2011.

The total business inventories/sales ratio based on seasonally adjusted data at the end of October was 1.29. The October 2011 ratio was 1.26.

Even though it has led to slightly negative prices, there's been a refreshing amount of connectivity between market movements and economic events OTHER than Fiscal Cliff headlines. Yesterday it was the Fed and this morning it's the data.

While the later is nowhere near the former in terms of impact, it did serve to slightly reinforce/confirm the selling trend in bond markets starting around 6:30am this morning. Before that, Treasuries had a choppy overnight session with 10's first moving lower into the 1.6's and then rising to 1.72 into European hours. Throughout the course course of the European session, German Bunds helped pull Treasury yields back into the 1.6's, but 10's were only able to play that game for so long before getting back to their new favorite game: "selling pressure following significant events."

First it was NFP Friday that marked the bottom of the recent yield range, and then of course, FOMC yesterday provided an even bigger ratcheting movement upward in yield. Traders are going with that flow to a large extent this morning and the fact that Retail Sales had strong internals and Jobless Claims were the lowest in 2 months is not helping.

Bond markets briefly paused at moderately weaker levels following the data, but have since devolved, with 10's up to 1.7178 and Fannie 3.0 MBS down 4 ticks on the morning after opening unchanged. The only other economic report this morning is Business Inventories at 10am. Then the last of the week's Treasury Auctions arrives at 1pm with 30yr Bonds.

- PPI -0.8 vs -0.5 Consensus
- Core PPI +0.1 vs +0.2 Consensus
- Energy PPI -4.6, biggest drop since March 2009. Gas -10.1.
- No substantive impact from Sandy - Labor Dept.The Producer Price Index for finished goods fell 0.8 percent in November, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Prices for finished goods decreased 0.2 percent in October and rose 1.1 percent in September. At the earlier stages of processing, prices received by manufacturers of intermediate goods declined 1.2 percent in November, and the crude goods index edged up 0.1 percent. On an unadjusted basis, the finished goods index advanced 1.5 percent for the 12 months ended November 2012, the smallest increase since a 0.5- percent rise for the 12 months ended July 2012.

- Headline Sales +0.3 vs +0.5 consensus, -0.3 previous
- Excluding Gasoline +0.8 vs -0.5 previous
- Commerce Dept says no impact from Sandy

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 $412.4 billion, an increase of 0.3 percent (±0.5%)* from the previous month and 3.7 percent (±0.7%) above November 2011. Total sales for the September through November 2012 period were up 4.3 percent (±0.5%) from the same period a year ago. The September to October 2012 percent change was unrevised from -0.3 percent (±0.2%).

Retail trade sales were up 0.2 percent (±0.5%)* from October 2012 and 3.4 percent (±0.8%) above last year. Nonstore retailers were up 11.1 percent (±2.8%) from November 2011 and sporting goods, hobby, book and music stores were up 7.1 percent (±4.8%) from last year.

- 343k vs 370k consensus, only minor revision to previous week from 370k to 372k

In the week ending December 8, the advance figure for seasonally adjusted initial claims was 343,000, a decrease of 29,000 from the previous week's revised figure of 372,000. The 4-week moving average was 381,500, a decrease of 27,000 from the previous week's revised average of 408,500.

The advance seasonally adjusted insured unemployment rate was 2.5 percent for the week ending December 1, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending December 1 was 3,198,000, a decrease of 23,000 from the preceding week's revised level of 3,221,000. The 4-week moving average was 3,270,750, a decrease of 42,250 from the preceding week's revised average of 3,313,000.