Weekly Mortgage Overview: 3/3/2014

What happened last week?

Mortgage backed securities (MBS) gained +75 basis points from last Friday’s close which caused 30-year fixed mortgage rates to improve. The market saw the lowest rates on Thursday and the highest rates on Monday.

Positive economic news is always negative for long-term bond prices and therefore mortgage rates. That is unless there is a massive rush into U.S. bonds due to overseas concern and that is exactly what happened last week.

If it wasn’t for a “flight to quality” into U.S. bonds primarily due to concern over the Ukraine, MBS would have sold off and mortgage rates would have increased. New Fed Chair Janet Yellen reaffirmed her earlier testimony for the House Financial Services committee in front of the Senate Banking committee, which means that the Fed is on a solid path to reduce their monthly bond purchases unless the economy takes a sharp nosedive. Durable Goods Orders were much better than expected and so were the Chicago Purchasing Manager’s Index (PMI) and Consumer Sentiment. The 4th quarter GDP was revised downward but in line with market expectations. All of these events would have normally pressured MBS pricing.

What’s on the agenda for this week?

This is a huge week for economic data with the focus squarely on ISM and employment data. But the domestic data is currently overshadowed by what is going on in the Ukraine and that is likely to continue to be a supportive factor for pricing all week.

The market is pricing in some reductions in the Non-Farm Payroll (NFP) data, primarily due to the weather, and that is providing a lift for bonds. But if we get some stronger than expected ADP, ISM or NFP, then MBS will move into a lower channel.

Personal Income and Spending: Personal Income improved 0.3% vs estimates of 0.2%, and Personal Spending rose 0.4% vs estimates of 0.1%. This better than expected economic news is negative for bonds and has moved MBS lower from the early morning highs.
ISM Manufacturing: Once again, last week’s better than expected Chicago PMI reading was a great preview of today’s ISM data. ISM Manufacturing was much stronger than expected (53.2 vs estimates of 52.0) and certainly didn’t show any signs of a slowdown due to weather. The ISM Prices Paid also rose which is inflationary in nature. This is negative news for bonds.
Construction Spending: Was much better than expected (+0.1% vs est of -0.5%). This is also considered negative for bonds.
Total Vehicle Sales: Won’t be released until later in the day and is expected to hit 15.3 million annualized units.