Mortgage Backed Securities (MBS) Overview
The day started with intra-day lock bias at neutral which signified worse pricing than Friday but not a major sell-off. Essentially all of Friday’s gains were wiped out today.
The combination of higher oil prices (WTI up +0.7%) and rising German bund yields have pressured MBS all day.
After pausing last Thursday and Friday, bonds resumed their move towards higher yields. The German 10 year bund is up 7BPS to 0.655% and our 30 year Treasury bond is up 0.0903 to 3.0159. Both spell pressure and worse pricing for our benchmark MBS. Last week, MBS traded and closed below the 200 day moving average every day except Friday. Today, MBS are struggling to close above it.
This was a very light day for data as there was only one low-level report with the release of the Home Builders Sentiment Index. It hit 54. Any number of 50 is positive/expansionary. The market was expecting 56 but it didn’t matter, MBS had no reaction to this data point.
San Francisco Federal Reserve: While the Atlanta Fed’s 1st quarter GDP projections proved to be dead-on, that doesn’t mean that they are correct every time (in fact…they are not..but hey…they got the last one right). In this case the SF Fed is throwing a mathematical monkey wrench into the first round of 1st quarter GDP revisions and perhaps setting the stage for the 2nd quarter. They are making a case for much stronger seasonal adjustments to the number (the 1st quarter of 2014 and 2015 both sucked) so….that must mean that all this bad weather needs to be adjusted for. Bond traders took this as a way of jerry-rigging the data to support a Fed rate hike. MBS sold off in the afternoon after this story broke.
Tomorrow, we have Housing Starts and Building Permits…neither are big market movers.