Sorry guys, I had to delay this week’s update by a day due to my other commitments, better stated as I was stuck in an airplane all day and without internet access.  I can’t wait until they put internet on these airplanes.  Since I delayed a day, this update will include a recap of last week with the bonus recap of Monday in addition to the normal analysis.  So, let’s get started.

Last week went pretty much as expected from my viewpoint, with mortgage rates climbing by week’s end.  Clearly the kicker for the week was Friday’s better than expected Jobs Jamboree.  Yet, even that report began back on Wednesday with the release of the ADP Employment Report.  Add to the equation that Jobless Claims have been dropping, beating expectations again this week, and you have people believing that the economy is beginning to recover.  Reality may prove different over time, but for now the economy is looking good and that is generally bad news for mortgage backed securities, and thus mortgage rates.  Additionally, Treasury Auctions flooded the markets and traders demanded higher yields, especially on longer term Treasuries, which also saw participation dropping off. 

Yesterday, mortgage backed securities saw a big rebound, but is it just a dead cat bounce, or the Fed flooding the markets, or will it be a sustainable move?  Time will tell for sure, but with the short term Treasuries being auctioned yesterday, yields dropped a bit as well, so at least the short term outlook may actually look good.  But wait, the Fed is buying Treasuries as well, so what really is reality?  Well, if you have been folloiwng the Fed purchases of both MBS and Treasuries, you can see that they clearly have stepped up the pace, so most likely the market improvements have been due mostly to Fed purchasing (aka manipulation). 

What about the remainder of the week, let’s take a look at the full week’s schedule:

• Monday:  3-month T-Bill Auction (1:00), 6-month T-Bill Auction (1:00), Ben Bernanke Speech (6:30)
• Tuesday:  Dennis Lockhart Speech (8:20), International Trade (8:30), 4-week T-Bill Auction (1:00)
• Wednesday:  MBA Purchase Applications (7:00), Retail Sales (8:30), Crude Inventories (10:30)
• Thursday:  Producer Price Index (PPI – 8:30), Jobless Claims (8:30), Money Supply (4:30)
• Friday:  Consumer Price Index (CPI – 8:30), Empire State Index (8:30), Industrial Production (9:15), Consumer Sentiment (9:55)

As you can see, for the most part the week will remain quiet with the exception of tomorrow’s Retail Sales and Friday’s data.  That means technical factors will remain in play as will news and events, and that means much the same as last week.  That is, expect the rise (which we already saw), followed by another drop in all likelihood.

When we look at what is actually moving the markets, along with the charts, you can see that the 50-day and 100-day moving averages have been breached.  Yesterday’s move bumped up against the 50-day moving average, but it appears to be acting as resistance as expected.   However, stochastics are edging into the oversold spectrum which could present opportunity for MBS pricing to reestablish their sideways trading pattern.  Personally, I think the data will overtake the Fed actions as the week progresses and mortgage rates will tick slightly higher again before the week ends.

Tagged as: MBS Commentary