The MBS markets will open at near very key support levels after the so-so employment report last Friday. The May employment data was somewhat better than many were expecting after the May ADP private jobs data last Wednesday was weaker than estimates. Markets are still concerned about when the Fed will begin to taper its QEs, the May employment report is seen as inconclusive in the debate. The unemployment rate increased to 7.6% from 7.5%, the main element that keeps the QEs still flowing. The FOMC meeting is a week from this Wednesday. Many believe that will add clarity to the question but we would be surprised if that occurred. The Fed has little reason now to change its direction.
This week is thin on economic data: May retail sales on Thursday and May industrial production and factory usage on Friday. May PPI also on Friday but these days there is no inflation and now concern that it will increase at a level that will generate fear of it. The Treasury will auction $66B of notes and bonds beginning Tuesday with $32B of 3-year notes, Wednesday $21B of 10-year notes that will be closely monitored on the demand. The bond and mortgage markets begin the week with bearish outlooks for rates.The 3.0 June FNMA coupon is at its key technical support; it looks shaky and is obviously bearish presently.