MBS Started the Day on an Upswing

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What happened yesterday? Mortgage backed securities (MBS) lost -26 basis points from Friday's close which caused 30 year fixed rates to move upward. MBS started the day on an upswing, primarily due to speculation about the upcoming German GDP report. By then end of the day, MBS had sold off -53BPS from our intra-day high. Besides pulling back for technical reasons, MBS sold off in the afternoon after the economists at the San Francisco Fed released a report estimating that the asset purchases (Treasuries and MBS) procured via QE3 have added only "a moderate boost" to economic growth.  The economic letter, written by Vasco Curdia and Andrea Ferrero, senior economists at the San Francisco regional bank, focused on the Fed’s second round of asset purchases: $600 billion of long-term Treasuries purchased between November 2010 and June 2011. The economists said the purchases added about 0.13 percentage point to real GDP growth. And without the guidance from the Fed that  rates would be held close to zero, QE2 would only have added 0.04 percentage point to growth, the economists found. Essentially, traders view this as the Fed nearing tapering in September since the "bang for the buck" doesn't seem to be there.  And of course (not to beat a dead horse), the greater the threat of a taper in September....the more pressure on MBS and therefore, the higher the mortgage rate.