Mortgage Backed Securities

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What happened last week? Mortgage backed securities (MBS) gained +0 basis points from last Friday's close which caused 30 year fixed rates to move sideways.  So, for the past two weeks, MBS have moved only +8BPS which have kept mortgage rates fairly steady. Mortgage backed securities traded in a tight range and we avoided the major swings in pricing that we had in the prior week.  We had light week in terms of the number of economic releases that hit the market and reports that were released were a mixed-bag. ISM Services came in much stronger than expected (56.0 vs est of 53.0) but Wholesale Inventories disappointed (-0.2% vs est of +0.2%).  Initial Weekly Jobless Claims were very close to market expectations (333K vs est of 336K). So, the economic data didn't really drive our pricing last week.  Instead it was Treasury auctions and Fed speak that were the major force in bond trades. We had three major U.S. Treasury auctions with the market focusing on the 10 year note and 30 year bond. Last week was all about the Fed and jobs.  Both the 10 year and 30 year auctions came off weaker than their recent averages as measured by their bid-to-cover ratio but were still strong enough to keep MBS pricing up. Talking Feds:  We had six different speeches by different Federal Reserve members, but few of them were voting members.  Essentially, they all said the same thing: 1) the Fed needs to cut back their monthly bond purchases of Treasuries and mortgage backed securities, 2) it will most likely happen in 2013, 3) they need to see more economic improvement from the second half of this year before they move to taper and 4) they would not give a specific date for the first taper. The fact that there was no specific date for the Fed to begin tapering kept MBS at an elevated level which kept rates low.