Weekly Mortgage Overview: 4/7/2014


The biggest event of the week will be Wednesday’s release of the minutes from the last FOMC meeting. The market will want to see more detail on their internal discussions regarding the prospective timing of increasing their Fed Fund rate. This was the meeting where Janet Yellen disclosed in her press conference that the Fed may begin to increase rates as soon as six months after they have completed winding down their asset purchase program which puts that period around mid 2015.

There is a large supply of Treasuries hitting the market this week, with the 10 year getting the most attention:
04/08 3-year note
04/09 10-year note
04/10 30-year bond

We also have a few “Talking Feds” this week: Plosser, Kocherlakota, Evans and Tarullo.

The market will also to be closely monitoring international events such as any new news of QE out of the ECB, Russia and China.

We have a nice and boring start to our week though with only a mid-level report later in the afternoon.

After trading after the 2.800% yield mark with the 10-year Treasury note last week, it is heading south this morning to 2.702% which will provide some nice support for mortgage backed securities (MBS) pricing today.

What happened last week?

MBS gained +17 basis points (BPS) from last Friday’s close which caused 30-year fixed mortgage rates to move slightly lower from the prior week. The market saw the lowest rates on Friday and the highest rates on Wednesday.

We had another week which showed some solid economic growth in the U.S. With very strong readings in Chicago PMI, Construction Spending, ISM Manufacturing, ISM Non-Manufacturing, Factory Orders, and the Non-Farm Payrolls. Usually economic growth pressures MBS pricing and increases rates. So why didn’t this round of data do that? Well actually MBS were trading worse until Friday’s Non-Farm Payroll report.

This was actually a good report. It had Non-Farm Payrolls increase by over 190K for the second straight month. But the issue is that the bond market was expecting a bigger bounce now that the weather issues have abated with a reading over 200K. Instead, the reading hit 192K. This reading disappointed the bond sector.