RateAlert Free Snapshot 12/5/2013

What happened yesterday?

Mortgage backed securities (MBS) lost -25 basis points (BPS) from Tuesday's close which caused 30 year fixed rates to move slightly higher.  So far this week(and month) MBS have lost -89 BPS.  Since November 1st, MBS have pulled back a whopping -261 BPS.
ADP Private Payrolls came in much better than expected (215K vs market expectations of 173K).  Plus, the prior period was revised upward significantly.  This positive jobs data was very negative for MBS pricing and was the single biggest factor in pushing up rates for the day.
The Trade Balance data basically matched market expectations and was not a factor in pricing.
ISM Non-Manufacturing came in a little lighter than market expectations (53.9 vs 55.0).  This helped MBS find a bottom and put a stopper in our early morning sell off.   However a reading of 53.9 is pretty darn good considering that anything above 50 shows expansion.  So, the ISM Manufacturing data showed expansion and so did the ISM Non-Manufacturing report.  Both reports are showing that the economy is growing.  This is why MBS did not rally more than did from our morning lows.
New Home Sales were much stronger than expected..rising almost 25% as buyers put down contracts before mortgage rates rise further.  Still, most economist expect this number to revised downward on the next release and it was only 444K  homes.  A far cry from when we  used to average over a million new home sales.
The Federal Reserve released their "Beige Book".  This is economic information (both statistical and anecdotal) from the 12 Federal Reserve Districts in the U.S. It essentially stated that all 12 districts saw expansion at a modest to moderate growth rate.  Traders reviewing this report felt that it was inline with a GDP rate of around 2% which is already the prevailing expectation.  As such, MBS were not materially impacted.
All U.S. based bonds sold off which pushed up interest rates across the board.  The yield on our 10 Year Treasury shot up from 2.7861 just before the ADP report to 2.8534.  The higher the yield...the worse it is for rates.

Please note that our benchmark FNMA 3.50 December coupon is currently trading below par (99.83).  The next coupon up (and above par) is the FNMA 4.0 coupon which is currently trading at 103.42 which is too high to be used as a benchmark but we need to play close attention.  If we get a strong Non-Farm Payroll report on Friday we could be switching to the FNMA 4.0 coupon as the benchmark. And that means higher rates.