What is on the agenda for this week?

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Lots of data on inflation: We have several reports (Import Prices, CPI and PPI) which will give a good picture of our inflation picture.  The market is expecting very mild to low inflation and this should provide continued support for bonds.

Retail Sales: This is one of those reports that is very important and has the potential to shift the markets.  The consensus estimate is for a change of 0.0%.  If we get a higher reading than that, we could see us move away from our highs.

Key Technical Test:  MBS are still benefitting from the big miss on Friday's Non-Farm Payroll report and we are now testing to very important resistance levels.  The 50 day moving average and the 100 day moving average are very close to each other.  If we can manage to close above the 100 day moving average this week, then that would signal that our rally on Friday is a true trend reversal and will lead to better pricing all week.  But if the 100 day moving average holds, then we know the top end of our range.
 

What happened last week?
Mortgage backed securities (MBS) gained +67 basis points (BPS) from last Friday's close which caused 30 year fixed rates to move lower for the week. We saw our best rates on Friday and our worst rates on Monday morning.

Mortgage backed securities (MBS), and therefore rates, moved sideways for most of the week. Making a gain of +26BPS one day, but then loosing -32BPS the next day. This sideways trend continued until we got Friday's Non-Farm Payroll data.
Last week was all about jobs data. The table was set on Wednesday after the much better than expected ADP Private Payrolls hit 238K. This caused everyone to raise their estimates for the Non-Farm Payroll numbers on Friday. But the Non-Farm Payroll data shocked the markets by coming in at just 74K when the markets were expecting something in the 190K-200K range. This weaker than expected data was favorable for bonds and mortgage backed securities rallied +80BPS which caused mortgage rates to drop.

Once again our 10 year Treasury yield stayed below 3.000% which continued to provide support for bonds across the board.