Mortgage Bonds begin the week modestly higher after Friday’s big move to the upside following the weak December Jobs Report.
There are no economic reports due for release today, but the rest of the week’s calendar features Retail Sales, inflation data from the Consumer and Producer Price Index, housing data, manufacturing and consumer sentiment. In addition, it is a big week for corporate earnings, which will dictate the direction of Stock prices.
Friday we saw Payroll growth slow to a multi-Year low coupled with the unemployment rate which reflected a further dwindling labor force. While it may be unlikely, we could see the Fed step back from tapering as a result of the disappointing labor force statistics. We’ll look to this week’s upcoming data to shed further light on the Fed’s sentiment as we get Retail sales, Housing starts, Industrial production and consumer price reports. The yield curve has diverged from its bear trend and is showing bullish daily momentum with mortgage spreads 1-2 tics tighter.
I am recommending to start the week carefully floating, but as we know, sentiment can quickly change direction. If there are any changes, I will get back to you. Have a great week!
What happened last week?
Mortgage backed securities (MBS) gained +67 basis points (BPS) from last Friday’s close which caused 30 year fixed rates to move lower for the week. We saw our best rates on Friday and our worst rates on Monday morning.
Mortgage backed securities (MBS), and therefore rates, moved sideways for most of the week. Making a gain of +26BPS one day, but then loosing -32BPS the next day. This sideways trend continued until we got Friday’s Non-Farm Payroll data.
Last week was all about jobs data. The table was set on Wednesday after the much better than expected ADP Private Payrolls hit 238K. This caused everyone to raise their estimates for the Non-Farm Payroll numbers on Friday. But the Non-Farm Payroll data shocked the markets by coming in at just 74K when the markets were expecting something in the 190K-200K range. This weaker than expected data was favorable for bonds and mortgage backed securities rallied +80BPS which caused mortgage rates to drop.
Once again our 10 year Treasury yield stayed below 3.000% which continued to provide support for bonds across the board.