MBS Recap and Forecast

Yesterday the MBS market was extremely volatile, bouncing up and down within a 32 basis point channel. The end result was an 11 basis point improvement, but most likely this gain on the day will not guarantee better rebate pricing as lenders were reacting to the market volatility through the day. Yesterday's activity did push us right up against the 102.00 resistance level, so we will want to watch that closely.

Today mortgage rates are once again at a crossroads where economic data releases will drive the direction of rates. If the Non-farm Payrolls show a strong economic outlook, be prepared for MBS to sell off, leading to higher mortgage rates. It is our belief that this is the more likely outcome. However if traders find weakness in the Non-farm Payrolls number, we could once again break above the 102.00 resistance level and see interest rate improvements. So today, like yesterday, be ready for volatility, and be ready to react. It is best to remain in contact with your Mortgage Professional, who is also monitoring the MBS market in real time and is your best resource to stay ahead of lender's pricing reactions to the market.

Remember, if you want to know the benefits of locking your rate today versus floating, simply contact your Most Trusted Mortgage Loan Professional who has access to real time Wall St. data and instant market alerts with breaking news.

- Michael Corboy
www.specialtyfinancialmtg.com

Today's MBS Recap

Yesterday Mortgage MBS gained +6 basis points from Monday's close. On Monday, MBS lost -6BPS The benchmark FNMA 3.50 November MBS has once again moved in a very narrow range. Yesterday was another example that the bond markets and stock markets are trading independently of each other as MBS gained only +6BPS but the DOW shot up over 100 points.

We had two waves of economic data the first wave occurred between 8:30 and 9:00EDT:
1. Headline Retail Sales were weaker than expected (-0.1 vs. the estimated 0.1%). Offsetting that miss was the Ex-Auto data which hit consensus estimates at 0.4%.
2. PPI was very tame and was lighter than expectations (-0.1 vs. the estimated 0.2%). The low inflationary data was offset by the core PPI matching expectations of 0.1%.
The net effect of the first wave of economic data was only 6 BPS from our morning highs to our early morning lows which tells you that the bond market basically ignored the early data.

The next wave of data hit at 10:00EDT with Business Inventories and Consumer Confidence. MBS briefly reacted to the weaker than expected Consumer Confidence data (71.2 vs. the estimated 75.3). MBS moved upward from -3BPS to +5BPS. This was only an +8BPS swing on a huge miss on the estimated Consumer Confidence, which would normally see a much bigger reaction to a miss like that.

The FOMC announced that they will continue with their $85 billion bond purchase program until more data is present to support a change. There was no guidance as to a timeline of a prospective taper. Only that it will continue until they feel the data warrants a change. This is essentially the same language as the last 5 FOMC meeting, which also left their key Fed Funds rate unchanged at 0 to 0.25%.

You can read the full report at:
http://federalreserve.gov/newsevents/press/monetary/20131030a.htm

- Michael Corboy
www.specialtyfinancialmtg.com

Market Update

Yesterday MBS lost -7 basis points from Friday's close. The benchmark FNMA 3.50 November MBS has once again moved in a very narrow range and as a result, mortgage rates did not change.

We had two mid-level reports and one major economic report that hit Monday morning and neither really moved the needle on MBS pricing. Both Industrial Production and Capacity Utilization were stronger than expected and would have normally pressure MBS leading to worse pricing but our floor of support located at the bottom of our trading channel held nicely and prevented MBS from selling off.

Existing Home Sales were much weaker than the consensus estimates (-5.6% vs. the estimated -0.5%). Normally this weaker than expected economic data would be positive for MBS and you would have seen an improvement in pricing. But we are far from "Normal" in this market. Our overhead ceiling of resistance located at the top our intra-day trading channel would put a stopper in any rally. But more importantly, is was the fact that the market wasn't trading on the consensus expectations. The market was trading on "whisper" numbers. What are "whisper" numbers? This is basically what traders are bantering around without regards to what the egg-head economists think. And in this case they were right. And it makes sense. September's interest rates had risen and many consumers were concerned about their job status with the looming government shutdown that was most likely going to hit on October 1st, which it did. We had a 2 year Treasury note auction where we sold $32 billion of our nation's debt. There was actually very strong demand for the auction with a bid-to-cover ratio of 3.32. However, the 2 year note is too short term to impact longer bond prices like MBS.
 

Headline Retail Sales were weaker than expected (-0.1 vs. the estimated 0.1%) this is generally good for bonds, but this reading could have been a lot worse. Offsetting that miss is the Ex-Auto data which hit consensus estimates at 0.4%. PPI was very tame was lighter than expectations (-0.1 vs. the estimated 0.2%). Bonds love low inflationary data, but the core PPI matched expectations at 0.1%. Consumer Confidence 71.2 vs. the estimated 75.0, this is good for your pricing and may help MBS test the top of our trading channel.
So, what we have here is nothing special. There is nothing in this morning's data to cause MBS to rally in a significant way. And there is certainly nothing here to cause a major sell off.
 

Today is another day with a full calendar of economic data releases. While it is likely we will end the day very near to how we started it, the various economic releases may cause some turbulance within the day's pricing. Remember that the mortgage professional who sent you this report today is also monitoring the MBS market in real time and is your best resource to stay ahead of lender's pricing reactions to the market.
 

Contact us today for a free rate quote and Good Faith Estimate. We will also keep you fully up to date on live pricing adjustments and released market data.
 

- Michael Corboy

www.specialtyfinancialmtg.com

This Week's Market Forecast

This week we have a huge amount of economic data that will hit this week due to several reports hitting that were postponed due to the government shutdown.

We will have a good read on the consumer with Retail Sales, Consumer Confidence and Auto Sales.  A good read on manufacturing with Chicago PMI and ISM Manufacturing.  We will also get more data on the jobs front with ADP Private Payrolls and Initial Jobless Claims. On the Housing front we will get Pending Home Sales and the Case-Shiller Home Price Index.  And on the inflationary front we get PPI and CPI.

So, as you can see we will get data on just about every sector of our economy this week.  Of course, the focus will naturally be on Wednesday's FOMC interest rate decision and policy statement.  However, most traders and economists do not expect the FOMC to make any changes to their policies or their time tables.


This week will see a large amount of economic data releases that were postponed due to the government shutdown.  While we will likely end the week very close to where we started it in both MBS pricing and interest rates, expect volatility along the way as we see the release of all of these reports.  We do expect rates to stay overall neutral because all expectations are that the Fed can't even begin talk of tapering

We will once again be “channel bound” in the exact same trading channel that we say Thursday and Friday and will see sideways movement in pricing.  Even if we get low inflationary readings with CPI and PPI and weaker economic data with Retail Sales, it is difficult to see bonds trading above our new resistance level that held all of last week.


We've settled right in the middle of our new trading range, and there isn't a lot of pending economic data today that should really move us.  It's probable that we see a pretty tame trading day today, with very little volatility that would cause any concern for lender repricing for the worse.  It's also not likely that we see any real rate improvements today either.
 

There is risk to floating right now, but be prepared to act quickly with your Mortgage Loan Professional to stay a step ahead of lender reprices and market trends to protect your mortgage rate.  Be sure to communicate with your Mortgage Loan Professional to stay abreast of any unforeseen movements that might cause concern though.  Remember that the mortgage professional who has provided you with this report today is also monitoring the MBS market in real time and is your best resource to stay ahead of lender's pricing reactions to the market.

- Michael Corboy
www.specialtyfinancialmtg.com

Last Week's MBS Recap

Last week MBS gained +61 basis points from last Friday's close which caused 30 year fixed rates to move lower for the week.  The benchmark FNMA 3.5 November MBS had one major movement during the week which was almost solely responsible for rates decreasing.  This was due to Tuesday's Non-Farm Payroll release.  Last week saw rates improve an average of .125% on Tuesday off news that the Non-Farm Payroll report came in much lower than anticipated.  This pushed MBS out of the previous trading range and pierced through the Resistance Level of 102.00 (which is now a new Support Level) and into a new trading channel.  Through the rest of the week MBS remained flat, with almost no change to rates or rebate pricing.    

The market was expecting around 180K new jobs, but the reading came in much lower at 148K.  Many economists think that we need at least 150K new jobs each month to see any measurable economic growth.  Bonds generally do better in low or negative economic growth, so this reading was positive for bonds and therefore mortgage rates.  Traders also viewed this data as a signal that the Federal Reserve would have to keep their monthly $85 billion Treasury and MBS purchases in place until at least the 2nd quarter of 2014 which will keep rates at low levels for an extended period of time.

Friday saw the MBS market end the day with an improvement of 14 basis points, which means that interest rates as well as pricing rebate should remain about the same.  It was the third day in a row that we saw MBS end the day flat. 

- Michael Corboy
www.specialtyfinancialmtg.com