As expected, the trading channel held up nicely. For the most part, mortgage backed securities (MBS) have trended right in the middle of the channel all day. Stocks saw some huge swings but not bonds as yet another example of how the two are no longer inversely joined at the hip. President Trump’s comments made it appear that the March 1 tariff deadline is a “soft” one and could be postponed if the negotiations are moving along with China. But he already said that last week, so it’s not really news and bonds did not have a reaction to it. There were no major economic releases that impacted pricing today.
MBS are expected to remain in their very clearly defined trading channel. Floating anywhere near the +15 to +19 level is very dangerous even though MBS is expected to test that range this week. Further gains over and above that level is not possible unless there is a huge breakdown in the China trade talks this week. Our domestic economic data will have little to no impact on pricing. This would be a good week to take very little risk, if any, and lock loans as they come into the pipelines.
Taking it to the House: The February NAHB Housing Market Index was much stronger than expected, shooting up from 58 in January to 62 in February. The market was expecting a reading of 59. Any reading above 50.0 is positive. All regions, with the exception of the Northeast, had positive gains.
On Deck for Tomorrow: Weekly Mortgage Applications and the Minutes from the last FOMC meeting.
The Talking Fed
Cleveland Fed President Loretta Mester had a more “hawkish” tone than what the markets are skewed toward…however, she is generally more hawkish anyway. She said that the Fed may need to raise interest rates in 2019 AND she does not see a recession in 2019 or even 2020. She also favors trimming the Fed’s balance sheet (bond portfolio) as originally scheduled (the market has shifted risk towards the Fed doing the opposite of that).
Across the Pond
Germany: Economic Sentiment -13.4 vs. estimates of -14.0.
Great Britain: Unemployment Rate 4.0% vs. estimates of 4.0%. Earnings 3.4% vs. estimates of 3.5%.