What happened yesterday?
Mortgage backed securities (MBS) lost -7 basis points from Friday's close. The benchmark FNMA 3.50 November MBS has once again moved in a very narrow range and as a result, mortgage rates did not change.
We had two mid-level reports and one major economic report that hit Monday morning and neither really moved the needle on MBS pricing.
Both Industrial Production and Capacity Utilization were stronger than expected and would have normally pressure MBS (worse pricing for you). But our floor of support located at the bottom of our trading channel held nicely and prevented MBS from selling off.
Existing Home Sales were much weaker than the consensus estimates (-5.6% vs est of -0.5%). "Normally" (notice the "air quotes" around Normally), this weaker than expected economic data would be positive for MBS and you would have seen an improvement in pricing. But we are far from "Normal" in this market. Our overhead ceiling of resistance located at the top our intra-day trading channel would put a stopper in any rally. But more importantly, is was the fact that the market wasn't trading on the consensus expectations. The market was trading on "whisper" numbers. What are "whisper" numbers? This is basically what traders are bantering around without regards to what the egg-head economists think. And in this case they were right. And it makes sense. September's interest rates had risen and many consumers were concerned about their job status with the looming government shutdown that was most likely going to hit on October 1st (and it did).
We had a 2 year Treasury note auction where we sold $32 billion of our nation's debt. There was actually very strong demand for the auction with a bid-to-cover ratio of 3.32. However, the 2 year note is too short term to impact longer bond prices like MBS.
We had two mid-level reports and one major economic report that hit Monday morning and neither really moved the needle on MBS pricing.
Both Industrial Production and Capacity Utilization were stronger than expected and would have normally pressure MBS (worse pricing for you). But our floor of support located at the bottom of our trading channel held nicely and prevented MBS from selling off.
Existing Home Sales were much weaker than the consensus estimates (-5.6% vs est of -0.5%). "Normally" (notice the "air quotes" around Normally), this weaker than expected economic data would be positive for MBS and you would have seen an improvement in pricing. But we are far from "Normal" in this market. Our overhead ceiling of resistance located at the top our intra-day trading channel would put a stopper in any rally. But more importantly, is was the fact that the market wasn't trading on the consensus expectations. The market was trading on "whisper" numbers. What are "whisper" numbers? This is basically what traders are bantering around without regards to what the egg-head economists think. And in this case they were right. And it makes sense. September's interest rates had risen and many consumers were concerned about their job status with the looming government shutdown that was most likely going to hit on October 1st (and it did).
We had a 2 year Treasury note auction where we sold $32 billion of our nation's debt. There was actually very strong demand for the auction with a bid-to-cover ratio of 3.32. However, the 2 year note is too short term to impact longer bond prices like MBS.
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