What happened last week?
Mortgage backed securities (MBS) lost 94 basis points (BPS) from last Friday’s close which caused 30-year fixed mortgage rates to increase and more than wiped out the prior week’s +75BPS gain. The market saw the lowest rates on Monday and the highest rates on Friday.
The “flight to quality” into U.S. bonds primarily due to concern over the Ukraine helped MBS rally two weeks ago and last week MBS reversed course as the market’s concern over Ukraine cooled off. This was the primary reason for the big sell-off in MBS (which caused higher rates) on Tuesday. But there was another sell-off on Friday which was due to domestic economic data.
The market was prepared for a much weaker than expected reading in the Non-Farm Payrolls. The consensus estimates were for 139K with “whisper numbers” much lower than that. But the actual results surprised to the upside with a reading of 175K. Plus, the last two months were revised upward. This much better than expected labor data caused bond traders to accept that the Federal Reserve would continue on their predefined course of “tapering” or reducing the amount of monthly Treasury and MBS purchases at each of their meetings. That caused mortgage rates to rise.
What’s on the agenda for this week?
Today the MBS market will likely be flat, either slightly improved or slightly worse than it opens, but not enough to see rates move. MBS are very close to oversold, a technical indicator that improvement to pricing should be coming this week. However, the improvement we may see is likely not enough to see rates improve much at all, possibly .125% and maybe nothing at all.
Two reports to look for being released Wednesday are the MBA Mortgage Index and the Treasury Budget.