Tale of The Tape

Today's Rate Volatility: HIGH

What happened yesterday?

Mortgage backed securities (MBS) lost -12 basis points (BPS) from Wednesday's close which was slightly negative for mortgage rates.

Tale of the Tape: We have now lost -124 BPS (so far) for the Month of December which has pushed mortgage rates upward. 

For the second consecutive day, MBS traded in a very narrow range.

Initial Weekly Jobless Claims were much higher then expected (368K vs 320K).  Plus the prior period was revised upward 2K.  This was positive for MBS pricing (good for rates) and if it was the only report yesterday, we would have had a nice rally.

But it was not the only report yesterday.  Headline Retail Sales were stronger than expected (0.7% vs 0.6%) plus the prior period was revised upward.  Core Retail Sales were double market expectations (0.4% vs 0.2%) and saw a good revision to the prior data as well.  This was certainly negative for MBS pricing (bad for rates) and more than offset the Initial Jobless Claims data.  As a result, MBS were down -10BPS after this report.

There were really no major surprises with the Import and Export Prices report and this data did not impact pricing.

Business Inventories were stronger than expected (0.7% vs est of 0.3%).  This has lead many economists to upgrade their GDP forecasts and was also slightly negative for bonds.

Our 30 year Treasury bond auction followed the same trend as Tuesday's 10 year note auction and saw a pull back in demand. Results: $13 billion at 3.90% with a bid-to-cover ratio of 2.35 which was lower than recent avg of 2.42.  But Tuesday's weakness in the 10 year was somewhat of a surprise to the market place.  Therefore, it was expected that yesterday's auction would be weaker than the recent average and so it didnt have as much of a negative impact on pricing as it could.

Besides the slew of negative news for bonds (Retail Sales, a budget, Business Inventories and the 30 year auction) MBS actually traded in a very narrow range that was only 25BPS wide from our highs to our lows of the day.

What is on the agenda for today?

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