August Coupon Gained...

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What happened yesterday? The benchmark FNMA 3.5% August coupon gained +33 BPS from Tuesday's close. We had a very volatile day for pricing. MBS sold off -52BPS (higher rates for you)on stronger than expected ADP Private Payrolls (200K vs 182K Est) and then we got hit with a much better than expected 2nd QTR GDP number (1.7 vs 1.2 estimate). We had a decent Chicago PMI report but it was less than market expectations and helped MBS to climb off of our lows for the morning and stay above our newest support level. There were no surprises with the FOMC meeting. They left their key interest rate unchanged and reaffirmed their previous guidance that they could continue to purchase $45 billion of U.S. Treasuries and $40 billion of GSE MBS each month.  They also reaffirmed that they would increase or decrease the level of monthly bond purchases if they thought the economic data would support it.  You can read the Fed's policy statement here: http://www.federalreserve.gov/newsevents/press/monetary/20130731a.htm As a result, MBS rebounded and rallied and moved back into positive territory. The FNMA Benchmark 3.5% August coupon moved from -30BPS at 2:00EDT to +30BPS by 3:15EDT...that is a +60BPS swing (better rates for you). This rally is not to be trusted though.  As we stated, there was no new information yesterday and most likely their statement was prepared prior to baking in yesterday's ADP Private Payroll report.  IF, Friday's Non-Farm Payroll report mirrors that of yesterday's ADP report, MBS will give up all of yesterday's late rally...so that is your risk vs. reward.