Today we got the release of inflation data in the form of the producer price index and they came with mixed results.  The overall reading was much better then expected at a decline of 2.8% vs estimates of a 1.8% decline.  This is a positive for mortgage backed securities.  The core reading, which strips out food and energy though came is worse then expected at a .4% increase when economists where expecting only a .1% rise.  This is a negative for mbs, thus on the day we are even from yesterdays close.

 We are also getting testimony from Ben Bernanke, Hank Paulson and Sheila Bair at a house committee meeting.  Their remarks could have an impact on mbs; however, we still have very tough resistance overhead which will keep us from rallying in a big way.  A big rally would move interest rates lower because as mbs’ go up in price the yield or interest rate declines.  We will post back if any of their comments cause a big move to the markets.

 Tomorrow we are getting more important inflation data in the form of consumer price index.  This gives us a reading of inflation on the consumer level.  This report is more important then the producer price index due to producers or less likely to pass along higher costs to the consumer.  Much of the time, producers absorb the higher costs and make less profit before they try to increase prices that consumers pay.  Thus, consumer inflation is always a bigger impacting report.

 Rates are holding very steady over the last couple days.  We seem to have developed a good floor of support just beneath us but still have the tough resistance overhead so we appear to be in a very tight trading channel.  In my opinion, you are safe to be floating today as the best day to lock was last week when rates where about .125% lower then today.  Lets see if any remarks from Ben, Hank or Sheila can move mbs through the overhead resistance towards lower interest rates.