THE BASIS POINT

Rates Up On Greece Deal. But The Deal Isn’t Closed Yet.

ThomsonReuters points out that with the Fed buying $1.2 billion in MBS per day, and originators selling $2 billion per day, $800 million is being absorbed by banks, money managers, insurance companies, etc.

Of particular interest in this latest report was 15-year share at 7.4% was at its lowest level since the Fed began reinvesting its paydowns back into MBS; its average has been 10.6%. Meanwhile, GNMA share was at its highest level at 23.0% (mostly IIs) versus an average of 14.2%.

Overnight and this morning, the latest round of optimism around the Greek bailout has the “risk-on trade” back.

The latest plan would have the ECB will swap a portion its current bond holdings for lower coupon debt, while also locking in gains that will be used to plug gaps in the latest bailout. Positive reaction for now but critical details remain and “risk-off” could return quickly.

This morning U.S. consumer inflation (CPI) for January was reported at 0.2% month/month and 2.9% year/year. Excluding food and energy, ‘Core’ CPI was 0.2% month/month and 2.3% year/year.

The Core yearly figure of 2.3% raised some eyebrows this morning, but not enough for real concern yet, especially since the Fed really focuses on Core Personal Consumption Expenditures (PCE) for consumer inflation rather than CPI. The last PCE reading came out January 30 and at that time, Core PCE for December was tame at 1.8%. January PCE is due March 1.

We’ll have Leading Economic Indicators later (expected +.5%), but look for things to become pretty quiet as folks head out early for the long weekend.

Rates are up .125% since yesterday’s MBS selloff, and if today’s selloff (FNMA 3.5 -13 basis points) extends to the close, rates could rise another .125%.

Julian Hebron & Rob Chrisman
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UPDATE:

Leading Economic Indicators (January 2012)
This is a rehash of already released data weighing the components and producing a picture of where GDP will be in 3-4 months.

LEI was +0.4% in January down from +0.5% on December. Some is this is monetary policy, some is increased manufacturing and some is due to the unseasonably warm weather which kept construction going.