We had another snoozer of a day in the mortgage backed security (MBS) market yesterday.   Other than a brief spike lower (as MBS move lower in price, mortgage rates move higher) following the 3 year treasury note auction, MBS traded again in a very tight range with plenty of government support.  If you can recall, the Federal Reserve is spending $1.25 trillion on MBS which is keeping mortgage rates near historic low levels.  Lender’s rate sheets should look very similar this morning to what we received yesterday.  This will continue to keep par 30 year conventional rate mortgages in the 4.625% to 4.875% range.

Today is very light on scheduled economic reports, but there are a couple relevant items to discuss.   Traders review these reports to determine where to invest their money.

First, the Mortgage Bankers’ Association released their weekly purchase applications index.  For the week of May 1^st, the purchase index rose slightly from the prior week, but overall the number continues to be at depressed levels.  The refinance index which is also released with this report showed an increase in activity and it remains at very strong levels.  It appears that many consumers are getting off the fence and taking advantage of these low mortgage rates by refinancing.   In contrast, consumers are apparently still on the sidelines on buying a new home even with mortgage rates at historic lows and home prices at very affordable levels.    This can probably be attributed to employment outlook by consumers.  You would have to feel very confident in your own finances and continued employment to buy a new home.   On this subject, please comment on your opinion of housing.  If you are thinking about buying a new home, are you still waiting for prices to decline further or for rates to move lower?  Or is the economic outlook keeping you on the sidelines?

Also today we received the ADP Employment report which is released in advance of the official Employment Situation report that we get on the first Friday of each month by the Bureau of Labor Statistics.   Historically, the ADP report has varied greatly from the official report, but its accuracy is improving.   One major difference between these two reports is that the ADP report only covers private jobs while the official report covers private and government jobs.  The release showed that private payrolls only declined by 491,000 in April which may be indicating an easing of job losses.  The official report on Friday is estimating the job losses to be at 620,000.   This is another report indicating that the worst of the recession may be over and on the news stock market futures moved much higher while MBS held steady. 

Later today at 1pm eastern time, the US Treasury Department will auction off $22billion of 10 year treasury notes.  As always, the added supply of debt on the market will apply pressure on treasury yields to increase which might result in higher consumer borrowing costs.  However, since it is already known how much the Treasury Department will be auctioning, the results of the auction will have much greater impact.  Hopefully, this auction will be received by investors as well as yesterday’s auction which saw above average overall demand and above average demand by indirect/foreign investors.   If you would like a recap of yesterday’s auction, Click here.

Early reports from fellow mortgage professionals are showing that lenders rate sheets are slightly improved over yesterdays with 4.625% being the par interest rate for well qualified consumers.   MBS are inching upward in price this morning but not near any levels that would result in lenders repricing for the better, but keep the faith.  As MBS move higher in price, mortgage rates and consumer borrowing costs move lower.   If you would like intraday updates which includes expert commentary and cool graphs, check out the MBS Commentary blog.