Mortgage Backed Securities (MBS) Overview
At 3:30 EST, FNMA MBS was up +10 BPS with 90 minutes left to trade. The stock market (DJIA -114.38) was down with 30 minutes to trade.
A small gain was expected in the +10 to +20 BPS range, and +10BPS had an intra-day high of +20BPS, which was right on the money.
MBS traded in a very narrow range all day, supported byno significant market-moving news to break out of the channel.
Existing Home Sales fell from a revised 5.14M in July to 5.05M in August. The market was expecting a reading of 5.20M, so this is a miss. But it’s not entirely bad news. The median home price rose for the 30th straight month and the pull back in sales was mostly due to less investment properties. The core owner occupied sales were flat. MBS had little to no reaction to this this data point.
ECB, President Mario Draghi: “The risks surrounding the expected expansion are clearly on the downside,” Draghi said today in his quarterly testimony to European lawmakers in Brussels. “Recent indicators gave no indication that the sharp decline” in economic activity in the currency bloc has stopped, he said.
China: China’s Finance Minister Lou Jiwei said Asia’s largest economy faces slower growth and Group-of-20 finance chiefs and central bankers said low interest rates may lead to a potential increase in financial-market risk. In other news, China’s energy/coal industry is in big trouble as 30% of the coal miners are unable to pay their workers on time. Weakness in China’s economy is something that provides support to our MBS.
Tomorrow starts the first of three Treasury auctions but this is unlikely to have an impact on pricing. There will also be the Richmond Fed MFG Index but this regional report generally is not able to move the needle on pricing either.