Mortgage Backed Securities (MBS) Overview
There is no domestic news that can move MBS trades out of the current channel until Friday’s Non-Farm payroll report; therefore, it is not worth the risk of floating. Those that actually trade MBS are very much aware of that 50-day and even 25-day overhead resistance and they are unwilling to bid up prices to those levels.
This morning’s Personal Spending and Income showed that consumers are saving their money instead of rushing out and spending it. This caused the U.S. savings rate to spike to its highest levels since 2012. The inflationary data (PCE) showed nothing new and has not impacted pricing either.
Today’s manufacturing data is interesting and overall negative for long bonds. The Markit Manufacturing PMI spiked to 55.1 (vs estimates of 54.3) and ISM Manufacturing Index showed continued monthly expansion with a reading of 52.9 (vs estimates of 53.0).
Cause and effect? There was a direct sell-off of MBS right after the ISM Manufacturing report. Why? Because traders now believe that last week’s weaker than expected Chicago PMI was a BS reading (it was on Friday) and that manufacturing is in fact growing and not contracting in the U.S.
Tomorrow is a light day with only Total Vehicle Sales hitting late in the session. MBS pricing will be following global events.