What happened yesterday? Mortgage backed securities (MBS) lost -15 basis points (BPS) from Tuesdays close which caused 30 year fixed rates to drift sideways. It was our second straight day of pricing declines but our benchmark FNMA 3.50 February coupon managed to close above par (100.02). MBS were under pressure all day, but we got a nice bounce off of our 10 day moving average. Producer Price Index (PPI): Lately, this report has been a real yawner having little to no impact on pricing because it has shown very little inflation. But this report had some strength to it. The headline number matched expectations at 0.4% but the core number which excludes the volatile food and energy components shot up 0.3% vs market expectations of only 0.1%. On a year-over-year basis, PPI was 1.2% vs est of 1.1%. This really isnt a horrible report. It still shows very little inflation (and remember, bonds hate inflation) but it was just another straw on the camels back. Its one more incremental piece of economic data that is showing economic growth (and inflation is created by growth). Bonds reacted negatively to this report and sold off immediately but we found some nice support at our 10 day moving average which put a stopper in our sell off. Empire Manufacturing: This is a regional manufacturing report and generally not a market mover but this has been a region that has had dismal readings for quite awhile. Today it came in at 12.51 vs estimates of 3.75 and the prior period was revised upward. If we start to see more gains in other regional reports it will start to impact pricing moving forward. Mortgage Applications: They rose 11.9% but this report has no impact on pricing as people who purchase MBS already know the demand for mortgages well before this report comes out. Talking Feds: Yesterdays Talking Fed was Charles Evans. It is important to note that he does not have a vote this year so his voice carries a lot less weight than it did. He basically spoke about keeping rates low well after Unemployment dropped below 6.5%. But he is not talking about mortgage rates...he is speaking about their Fed Fund Rate. And he felt that they should return to relying more on the traditional rate policy tool of manipulating the Fed Fund Rate rather than through their asset purchase program. His comments provided nothing new and did not impact pricing. Beige Book: The Feds Beige Book was released at 2:00EST. This gives a current economic situation in the 12 Federal Reserve Districts based upon key interviews with business leaders, bankers, economists, and experts in each of the individual districts. So, it is not really a statistical report. Overall it was an O.K. report. Bonds did recover from their worse pricing levels of the day in response to the report because it could have been a lot stronger. Real Estate improved in 7 out the 12 districts, there was an increase in hiring in 5 out of the 12 districts, manufacturing saw some growth and there was some small level of wage inflation. Overall it was a very moderate growth story and MBS moved off of their lows of the day due to this report.
Posted on: Thu, 16 Jan 2014 23:05:00 +0000