What happened yesterday?
Mortgage backed securities (MBS) gained just +2 basis points from Friday's close.
It was another day of no economic data as the scheduled Consumer Credit report was not released due to the shutdown.
At first, our benchmark FNMA 3.5 October Coupon MBS shot up +39BPS by 10:00EDT and once again tested our ceiling resistance. And once again it held - driving MBS downward (worse pricing for you) -46BPS from 10EDT to 4:00EDT. But we once again found support at the bottom of our trading channel located at our 10 day moving average.
Be careful. Last week, the government shutdown and corresponding temporary drag on our economy was responsible for some of the best pricing that you have seen in several months. However, that was due to trader's sentiment that it would be short lived.
Now, we are entering into that "brackish" period where the concern is tilting towards a prolonged shutdown and hitting our debt ceiling without a real solution. If that would ever to occur then our debt would not be as attractive to foreign investors and cause our rates to rise. Think of it this way....the U.S. would go from an 800 credit score down to a 580. Would you lend more money (ie buying Treasuries) to a country that is in default? That is like giving a mortgage to someone that is default of their auto loan, student loan and currently in foreclosure.
As a result, MBS and Treasuries are becoming less attractive and are losing some pricing.
So far, we are still trading in the same channel as all of last week but just be prepared...there is a point where this negative news out of Washington is no longer beneficial to your rates. We are not there yet...but it is only 9 days away.
It was another day of no economic data as the scheduled Consumer Credit report was not released due to the shutdown.
At first, our benchmark FNMA 3.5 October Coupon MBS shot up +39BPS by 10:00EDT and once again tested our ceiling resistance. And once again it held - driving MBS downward (worse pricing for you) -46BPS from 10EDT to 4:00EDT. But we once again found support at the bottom of our trading channel located at our 10 day moving average.
Be careful. Last week, the government shutdown and corresponding temporary drag on our economy was responsible for some of the best pricing that you have seen in several months. However, that was due to trader's sentiment that it would be short lived.
Now, we are entering into that "brackish" period where the concern is tilting towards a prolonged shutdown and hitting our debt ceiling without a real solution. If that would ever to occur then our debt would not be as attractive to foreign investors and cause our rates to rise. Think of it this way....the U.S. would go from an 800 credit score down to a 580. Would you lend more money (ie buying Treasuries) to a country that is in default? That is like giving a mortgage to someone that is default of their auto loan, student loan and currently in foreclosure.
As a result, MBS and Treasuries are becoming less attractive and are losing some pricing.
So far, we are still trading in the same channel as all of last week but just be prepared...there is a point where this negative news out of Washington is no longer beneficial to your rates. We are not there yet...but it is only 9 days away.
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