Mortgage Market Update

Greetings from Sao Paulo again this week.  I hope everyone had a very Merry Christmas and didn’t travel as much as I have in the last week or so.  Last week didn’t see as much volatility as usually can be seen with shortened trading days and a shortened week, and mortgage rates ending the week basically where they started.

We did see the week start off with a pullback which was expected and fortunately was not as much as could have been.  As data began to flow, we saw mortgage backed securities began to climb back to end the week slightly down as inflation fell back into the Fed’s “comfort zone” and news about the economy remains negative.  There were several Treasury auctions last week as the government continues to cover the bailouts, among other things.  We saw another 4-week auction bid 0.00% yield and we saw relatively low foreign participation, which is not good news for mortgage bonds.

This week will be light on data as well, along with another shortened trading week, so volatility could show up, or we could see another tame week like this last one.  The ISM Index will be the major player of the week and will be the first set of data of 2009.  Here is the rest of the week’s data:

• Monday:  No data scheduled
• Tuesday:  Consumer Confidence (10:00)
• Wednesday:  Initial Jobless Claims (8:30), Chicago PMI (9:45), Crude Inventories (10:30)
• Thursday:  HAPPY NEW YEAR!!!
• Friday:  ISM Index (10:00)

Looking at the charts, we can see that mortgage backed securities remain along their 10-day moving average and in a narrow trading range, and may make an effort to reach new highs this week, though I suspect we will see them remain fairly flat again overall.  Stochastic indications are giving some breathing room as the rest on the bottom of the “overbought” zone, so we may see some new life for mortgage bonds as the new year starts.