After yesterday, so glad that Friday is here. Mortgage backed securities got rather beat up but not nearly as badly as US treasuries. We will see worse rate sheets this morning by about .125 to .25% when comparing them to opening rate sheets yesterday. Many lenders repriced for the worse yesterday due to the sell off of mbs, however, some of our war room members have reported this morning that rates are slightly better then the last rate sheet they received yesterday.
Today we received some key economic reports. First, we got the release of Advance GDP for the 4th quarter. Economist’s where expecting a dismal -5.4%, but the number came in better at a contraction of -3.8%. Even though this is better then expected it still shows that our economy contracted by quite a bit. MBS had very little reaction to this report mainly due to it be backward looking. Meaning, it is showing how our economy performed in the last quarter of 2008 and investors are more concerned with looking forward. Next, we got the release of Chicago PMI, economist’s where expecting a reading of 34.0 but the number came in worse at 33.3. Readings above 50 indicates that our economy is expanding and readings below 50 indicate contraction. So, this report continues to show weakness in the manufacturing segment of our economy. Finally, we got the release of consumer sentiment. Economist’s where expecting a reading of 62.0 but the number also came in worse at 61.2 so the US consumer is still concerned about the economy and is less likely to spend money which is a negative for the economy. All in all, these reports are friendly to fixed income investments such as mortgage backed securities.
So far this morning we have been on a roller coaster of a ride. Mortgage backed securities as well as Treasuries rallied this morning. At one point, mbs had regained more the half of what they lost yesterday. Since then we have given most of the gains back but we are still positive on the day. As mortgage backed securities rise in price or positive on the day, mortgage rates move lower and vice versa. I am not a fan of watching treasuries since mortgage rates are tied to mbs, but mbs seemed to be attached at the hip with them this entire week. If you need a good barometer for mbs price movement but do not have access to mbs pricing, you could watch the 10 yr treasury. As stated before, birds of a feather flock together and mbs and treasures are both fixed income investments and do tend to trend in the same direction.
I would like to thank everyone for reading my blog and I appreciate all the nice emails I have been receiving. On a side note, this is Super Bowl weekend, I hope everyone enjoys the game. Go Steelers!!!!!