Mortgage Backed Securities (MBS) Overview
MBS opened with positive momentum as traders bid up MBS from the 200-day moving average. This is very common as the 200-day moving average is the last backstop and traders feel confident that it will not trade lower and therefore are willing to purchase it again. Economic releases today did not move the needle on pricing; today’s gains were solely due to a technical bounce.
Empire Manufacturing: Jumped to its best reading since October 2009 and handily beat the market expectations (27.5 vs estimate of 16.0). But this follows the prior month which had the biggest downswing in 2 years. This regional manufacturing report grabbed some headlines but did not impact MBS pricing.
Industrial Production: Was lighter than expected at -0.1 vs estimate of +0.3, plus the prior period was revised downward. Capacity Utilization also missed (78.8% vs estimate of 79.3%). However, this reading is still one of the better readings in past 24 months. MBS moved sideways after this report.
Internationally, there were no major events that directly caused MBS to move. It looks like the new Ukraine Prime Minister may be on his way out and the market is all non-stop talk about Scotland. But there is nothing really new here.
All-in-all, it was a fairly subdued day with small gains due to a technical bounce as traders await Wednesday’s Fed meeting.
Tomorrow’s Major Events
PPI: The higher this reading is on a year-over-year (YOY), the worse it is for rates. But with oil prices plunging, it is not likely that there will be a spike in this reading and it will remain below 2.00% on a YOY basis. As such, this is not likely to be a big mover in MBS pricing.