What happened last week?
MBS Overview – Learn from the Past
Mortgage backed securities (MBS) gained +74 basis points (BPS) from last Friday’s close which caused 30 year fixed mortgage rates to improve from the prior week. Most of the gains were made on Friday.
It was a packed week for domestic economic data that was certainly a mixed bag. Durable Goods Orders and 4th quarter GDP were much weaker than expected but we saw strength in better than expected readings in Consumer Confidence and Chicago PMI.
The Federal Reserve Open Market Committee (FOMC) released their latest and greatest interest rate decision and policy statement. They of course left their key interest rate alone and stated that they will continue to remain ‘patient’. They noted that economic activity has expanded and that the labor market is improving. But they also mentioned, for the very first time, concern over international deflation. That last component caused MBS to rise (lower rates).
But the biggest market mover of the week was not the Fed, it was Friday’s release of the preliminary (it will be revised 2 more times) 4th quarter GDP. The market was expecting a very robust reading in the 3.0% to 3.2% range, but it came in much lighter than that with a reading of 2.6%. This caused bond traders to bet that the Fed is a long way off from raising their key rate and MBS shot up (lower rates).
What’s on the agenda for this week?
Intra-Day Lock Status: On an intra-day basis…there is no need to hold out for better pricing from Friday’s close. It will take a very weak ISM manufacturing report today for MBS to move back into positive territory. For the week MBS is expected to remain at very elevated levels but a strong NFP report on Friday could cause a move into a lower channel and simply not worth the risk.
This is another big week of economic data with the focus squarely on Manufacturing and Jobs.
Friday’s Non-Farm Payroll data will get a lot of attention, but it’s the little known Average Hourly Earnings that could have the biggest impact on pricing. Rates will not begin to rise until we see that number start to increase.
This morning’s early data was positive for pricing, yet MBS have been selling off..why?
Oil…that’s why, as 10% of our refining capacity is offline and there is a massive strike by U.S. oil workers. This is causing WTI prices to rise and that is taking some of the lift out of MBS pricing.
There are no major Treasury auctions this week but we do have plenty of “talking Fed’s” to watch.