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