Mortgage Backed Securities (MBS) Overview
MBS are expected to move back into the same trading channel that has held for the past 7 sessions and that is right where MBS are trading right now.
MBS were lower right out of the gate and well before any economic data hit as traders took their profits and got out of the over-bought positions of the prior day.
Domestic Flavor
CPI: December Consumer Price Index (CPI) was -0.4% vs estimates of -0.4%. When you strip out the volatile food and energy group it was 0.0% vs estimates of 0.1%. This was largely priced in and expected in the market place and not a factor in pricing this morning. The year over year number retreated to 1.6%, which is certainly well below the Fed’s target inflation rate of 2.00%.
Production: December Industrial Production was -0.1% vs estimates of 0.0%, Capacity Utilization 79.7 vs estimates of 80.0%.
These are both a slight miss to the downside and are slightly positive for pricing, although not by enough to reverse this morning’s sell-off from yesterday’s over-blown highs.
Consumer Sentiment Index: The preliminary January (will be revised one more time) Consumer Sentiment Index hit 98.2 vs estimates of 94.1. This is a HUGE reading and was negative for pricing.
Across the Pond
Greece: Emergency Liquidity Assistance (ELA) has been requested by two Greek banks (so far) as the run has begun as people are taking what they can out of the banks ahead of the big vote next week.
Oil: Yesterday’s sell-off certainly fueled much of the MBS rally and today’s rally in oil WTI +4.33% pressured MBS.