What Happened Last Week?
MBS Overview – Learn from the Past
Mortgage backed securities (MBS) lost -28 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move higher than the prior week.
The biggest report of last week was the third and final revision to the 4th quarter GDP, unchanged from its prior revision of 2.2%. The final revision to Consumer Confidence improved from 91.2 to 93.0. Durable Goods was a big miss to the downside coming in at -1.4% vs estimates of +0.4%.
On the housing front, Existing Home Sales (the largest segment of the housing market) improved from 4.82 million units up to 4.88 million units on an annualized basis. And New Home Sales (the smallest segment of the housing market) improved from an upwardly revised 500K units up to 539K units on an annualized basis.
There were three Treasury auctions last week with mixed results. The 2 year saw very strong demand and mortgage rates improved a little in afternoon trading after the results hit. But the 5 year and 7 year both saw a pull-back in demand as bond traders’ sentiment towards a Fed rate hike around the September meeting weighed on demand. Mortgage rates increased after each of those auctions.
Overall, the 3.0 MBS pulled back but there was still great support which kept MBS from selling off further. And that support was due to concern over Greece’s potential “Grexit” from the Eurozone. Last week’s financial headlines were dominated by news stories of dysfunctional negotiations between Greece and Germany as Greece was refused access to part of the funds still available in their last bailout until they can demonstrate that they are actually implementing the reforms that they promised.
What ‘s on the Agenda for This Week?
This is a very pivotal week which will have a large impact on the longer term trend.
Jobs, Jobs, Jobs: There is a ton of labor market data this week including: Personal Income, ADP Private Payrolls, Challenger Job Cuts, Initial Weekly Jobless Claims, Non-Farm Payrolls, Unemployment Rate, Average Hourly Earnings. The latter will get the most attention by bond traders as we want to see if we can get our third straight month of hourly earning increases, and to what degree. The stronger this reading is, the worse it is for rates as traders will hone in on and expected Fed rate hike sooner.
Manufacturing: Chicago PMI, Markit PMI, ISM Manufacturing and Factory Orders.
Globally: There will be some Central Bank action with a ECB meeting and China’s PBOC hinting at some more easing. Of course, Greece’s new list of reforms is supposed to hit Monday or Tuesday and will be closely watched to see if they can B.S. their way into getting more cash.
Iran is also in the spotlight as it appears as if our Government is looking to give away the farm and let Iran flood the market with its oil (which it will use to get the cash it needs to fund its global terrorist networks) as part of a nuclear deal which would allow Iran to move forward with “domestic use” nuclear development as our administration pleads…..just “pinky swear” you wont make any nuclear bonbs…ok?
03/30 Stanley Fischer, Vice Chair Board of Governors
-Jeffrey Lacker, Richmond Fed President
-Dennis Lockhart, Atlanta Fed President
-Loretta Mester, Cleveland Fed President
-Esther George, Kansas City Fed President
04/01 John Williams, San Francisco Fed President
04/03 Narayana Kocherlakota, Minneapolis Fed President