I couldn’t get a post off yesterday as I had hoped, but I am again sitting in a hotel today, so I am writing this well rested versus the typical tired self from flying all night.  And speaking of tired, it appears that mortgage backed securities got tired last week from fighting to move higher and ended the week down considerably, sending mortgage rates higher.

Last week was a wild ride as expected, only no trend really set up, except maybe the longer term downtrend as prices failed to even get back to recent highs.  Once again, we have plowed through many trend lines, though this time we have some good data backing the moves, so as I said last week, we can now see what the future probably looks like.  And just like last week, we will need to see another correction, though this one will offer a brief floating period.  While most of the move was fueled by a better outlook for the jobs market, other data played out negatively for MBS prices as well.

We started the week off with a better than expected ISM Manufacturing Index, then followed that up with an increase in construction spending.  We did see some good news in the monthly PCE report, showing tame inflation, but then Pending Home Sales came in much better than expected and that was enough to overrule the PCE and sent MBS prices down again.  Then came the ADP Employment Report which, though not known for accuracy, signaled a better than expected Jobs report and that drove MBS prices even lower.  And it just kept getting worse as Jobless Claims and finally the Jobs Jamboree finished this week’s brutal beating.  Overall MBS prices dropped a whopping 187 basis points.

So what will this week hold?  More of the same, or will MBS prices gain some strength?  Well, as with any major move, we need a corrective period and this week will likely offer that, though the data will not be letting up much.  We have another week of big events, including the FOMC Meeting, so here is the current rundown…

• Monday:  3-month T-Bill Auction (1:00), 6-month T-Bill Auction (1:00
• Tuesday:  Productivity and Costs (8:30), 4-week T-Bill Auction (1:00), 3-year T-Note Auction (1:00)
• Wednesday:  MBA Purchase Applications (7:00), International Trade (8:30), Crude Inventories (10:30), FOMC Meeting (2:15)
• Thursday:  Jobless Claims (8:30), Retail Sales (8:30), 30-year T-Bond Auction (1:00)
• Friday:  Consumer Price Index (8:30), Industrial Production (9:15), Consumer Sentiment (9:55)

As you can see, there will be an opportunity for that correction to take place in the beginning of the week.  As the week progresses, data heats up again and we will likely see a resumption of the downtrend.  That being said, any favorable news could get mortgage backed securities back into that sideways trading pattern.

When we look at the charts, we see stochastics getting a positive crossover indicating the correction is likely taking place.  But last week we saw the 25-day moving average crossover below the 200-day moving average and that is not a good sign.  Chances are we will see a move that may test the 25-day moving average, but it will have to break through the 50-day moving average first.  If mortgage bonds can find enough strength, they may even make it to the 200-day moving average, but with economic data showing steady signs of improvement now, things do not look very good for mortgage rates down the road and the charts are backing that viewpoint up currently.

As this week, unfolds, it will be much like last week, with the need to take it day-by-day.  However, if the trend continues as the charts predict, take advantage of the correction when it happens as we may not see mortgage rates this low again for a while.