Mortgage Backed Securities (MBS) Overview
There were no major economic releases or Treasury auctions for the market to react to. MBS were up as much as +25BPS at 11:51EST and then started to sell off and by 1:51EST were up only +4BPS. That is a -21BPS sell-off.
MBS drifted upward without any domestic data to guide us, and news of Russia holding more military “drills” on the border and Israel stepping up bombing on the Gaza strip. But you need NOT fear from overseas for MBS to SUSTAIN a rally. Today’s trading channel is clear evidence of this as traders were unwilling to support pricing above the 50-day moving average, and that is why MBS sold off between 12EST and 2EST.
Factory Orders: The market is expecting a reading of 0.6 after last month’s dismal reading of -0.5. A reading above 0.8 will pressure pricing and it will take another negative reading for MBS to rally.
ISM Non-Manufacturing: The services sector accounts for as much as 2/3 of our economy, so this is an important reading. The market is expecting 56.3 which would show solid expansion given that anything above 50 shows growth. ISM Manufacturing was a blockbuster last week. If this reading comes in above 58, MBS will sell off.
Not any change today in the bond and mortgage markets. That has been the case now for about three weeks, although through each of the last three weeks during the week there were a number of volatile sessions. Recently the bond and MBS markets are best judged tracking prices and changes from Friday to Friday where there has been very little change. It isn’t at all unusual that large investors and central banks use weekly charts in deference to daily charts to smooth out the day-to-day volatility. Today, as has been the situation for two weeks now, the bond and mortgage markets moved in tandem with how the stock market indexes traded. MBS prices were at their best this morning as was the 10-year note rate, when the key indexes were weaker. This afternoon the DJIA improved and prices of treasuries backed down from their best levels. Overall though, there really wasn’t much change in the rate markets.
There were no data points today, and not many this week. The absence of domestic data shifts focus to global data or anything else that can be made into a trading point, or at least something to talk about. Tomorrow two of the week’s three key reports are out. Both at 10:00: July ISM service sector index is expected at 56.5 from 56.0 in June. June factory orders expected up 0.6% after a -0.5% decline in May.
Two weeks ago Fannie Mae released its first ever survey of sentiment of mortgage lenders. We saw it, then ignored it, now with not much happening we thought it would be worthwhile looking at it. It is a quarterly Mortgage Lender Sentiment Survey. This new industry research initiative tracks insights into current lending activities and market expectations among senior mortgage executives at Fannie Mae’s lending institution partners. Results collected during the first two quarters of 2014 show greater consumer mortgage demand in the second quarter of the year, a steady and positive near-term mortgage demand outlook, and divergence between larger and smaller lenders in underwriting credit standards.