What happened yesterday?
Mortgage backed securities (MBS) gained 40 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly lower from the prior week But MBS lost 8 BPS from Wednesday’s close which caused fixed mortgage rates to move sideways for the session.
The bond market closed early last week; most bond traders left their desk Thursday at noon and won’t return until next week. MBS moved in a narrow range on lighter volumes as they basically drifted sideways within the trading channel.
GDP: There was yet another upward revision to our 3rd quarter GDP. This time it moved up from 3.2% to 3.5% which was higher than market expectations of 3.3%. Much of the strength was driven by consumer spending which was up 3.0%.
Durable Goods: The November data was better than expected. The headline reading hit -4.6% vs estimates of -4.7%, and the core (ex-Transportation) grew 0.5% vs estimates of 0.2%, plus the October core data was revised upward from 0.6% to 0.8%
Housing: Weekly Mortgage Applications actually increased for once. They moved up by 3.0%. Both Purchase and Refinance applications were up 2.5% respectively.
Existing Home Sales: The November data was better than expected with a 5.61M vs 5.50M reading. The median price rose 0.3% higher in the month to $234,900 for a year-on-year gain of 6.8%. Supply fell a very steep 8.0% in the month to 1.850 million which is down 9.3% year-on-year.
What’s on the agenda for this week?
MBS moved lower in early trading as WTI Oil prices jumped past $53 and then were hit by a blockbuster reading in Consumer Confidence. Both will ensure that MBS will trade at or near the bottom of the channel but are not likely to push lower down. MBS are really just moving sideways in a relative range. Last week MBS moved up slightly which means that now there is a little room for MBS to move lower.
This week is another one with only a skeleton crew of long bond traders until next week. It’s also a very short week with yesterday being closed for Christmas and an early close on Friday for New Year’s. Domestically, only two reports garner any attention: Consumer Confidence today and Chicago PMI on Friday. There is the last barrage of Treasury auctions this week with Thursday’s 7 year note getting the most attention.
Housing: The October Case-Shiller 20 metro city Home Price Index came in at 5.1% vs estimates of 5.0%. This is older data and from too small a sample size to impact pricing but remains at a nice and healthy trend level.
Consumer Confidence: The trend upward in Consumer Confidence that started after the election continues. The December reading jumped to 113.7 which beat forecasts calling for 105.5. November was revised upward from 107.1 to 109.4
Manufacturing: The Richmond Fed Manufacturing Index doubled from November’s reading of 4 to December’s reading of 8.
Treasury Auctions this Week
12/27 2 year note
12/28 5 year note
12/29 7 year note
There was some stronger than expected domestic economic data (Consumer Confidence) and rising oil prices which kept the pressure on pricing. There was also a dismal 2 year Treasury note auction (that had no impact on pricing).
Today kicked off three days of shorter term notes with the 2 year note. $26B went off at a high yield of 1.280%, which is the highest rate on a 2 year term since 2008. Demand fell off as well, with the bid-to-cover ratio hitting 2.44 which is the lowest level this year.
On Deck for Tomorrow
Pending Home Sales and a 5YR Treasury auction.