What happened last week?
MBS Overview – Learn from the Past
Mortgage backed securities (MBS) gained +25 basis points (BPS) from last Friday’s close which caused 30 year fixed mortgage rates to move slightly lower from the prior week. We had best pricing on Friday and worst pricing on Thursday.
Overall, the domestic economic data was very strong last week. ISM Manufacturing was much stronger than expectations, and ISM Non-Manufacturing was a tad lighter than expectations but still had a very strong reading of 57.1 (anything above 50 shows economic expansion). We also saw some nice gains in Productivity that beat forecasts.
But of course, the spotlight was on domestic jobs data. The ADP Private Payroll Data was better than expected (230K vs estimates of 220K) and the Unemployment Rate dropped from 5.9% down to 5.8%. But the market focused more on the Non-Farm Payroll (NFP) data which was a mixed-bag. It did come in a little lighter than expected (214K vs estimates of 231K), but offsetting that was the fact that both August and September were revised upward by a combined total of 31K.
Overall, the NFP report was pretty good. It was the 49th straight month of job gains and the 9th straight month of a reading above 200K. The six month moving average shot up to 235K.
Generally, the jobs data and other positive economic data are bearish for pricing, but MBS rallied on Friday to give the best rates of the week. Why? Was it the jobs report? NO. MBS did make a move upward on the jobs data Friday but then sold off and returned to the same level as before the report. MBS later made a move upward in direct response to news that Russian tanks were once again within Ukraine’s borders and Russian troops had once again camped out along the border. This was directly due to Putin putting the pressure on Ukraine and the EU to come to better terms over a gas deal with Russia which owed significant amounts of cash by Ukraine for gas shipments that are long unpaid.
MBS also got a boost by comments made by our own Fed Chair Janet Yellen speaking in France where it appeared that she voiced support for the ECB’s plan to print money to purchase sovereign bonds.
What’s on the agenda for this week?
MBS are under pressure today as Friday’s run-up was not fully supported but was in reaction to overseas events. Overseas remains a concern but the fear was that things would escalate further in the Ukraine..and they simply haven’t – so of that “fear factor” spike in pricing is dissipating.
This is a very, very light week for economic data, with Friday’s Retail Sales data getting the most attention by bond traders.
We also have a holiday-shortened week and a bond coupon rollover. There is an important 10 year Treasury auction to watch and some talking feds.
11/10 – Boston President Rosengren
11/12 – Minneapolis President Kocherlakota
11/14 – St. Louis President Bullard
Treasury Auctions This Week:
11/10 – 3 year note
11/13 – 10 year note
11/14 – 30 year bond
But the key to pricing this week is once again from overseas as the long-bond market will continue to watch what is going on with Russia and Ukraine as well as China’s growth concerns and any news out of Europe.
***Bond market is CLOSED on Tuesday***
***Monthly Bond Roll-Over on Wednesday***