What a roller coaster ride we have been on lately. Yesterday mortgage backed securities(MBS) traded way up, then sold off all gains, leaving us just about where we started the day. After the release of weaker than expected inflation data, MBS went on quite a rally which created quite a bit of optimism in the mortgage community about sub-5% mortgage rates. However, like we have said a few times during recent rallies, we must remain defensive as things could change quickly. To see a graph of yesterday's trading action CLICK HERE.
We do have some economic data coming out this morning. First on the docket, is the weekly jobless claims numbers which totals the number of Americans filing for first time unemployment benefits. As part of this report, we also get continuing claims which totals the number of Americans who continue to file for unemployment benefits due to heir inability to secure a new job. So far, continuing claims have set a new record high recording 19 weeks in a row. The Labor Department reported that 608,000 people filed for unemployment benefits last week, slightly worse than expectations of 600,000 initial claims. The prior week's claims were revised slightly worse from 601,000 to 605,000. The continuing claims posted a notable improvement, dropping from 6.84 million to 6.687 million, which breaks the streak of printing new record highs. After the data release, MBS selling intensified and mortgage rates ticked higher in the process.
There are 2 other relevant reports that will not be released until after I am sitting in the jury box. I will go over these reports tomorrow but here is a precursor. The Conference Board will release their Leading Indicators index which gives investors a measure on the overall strength of our economy. Last month's report indicated the first gain in 7 months coming in at 1.0% and economist's expectations for this month is another 1.0% increase. The stock market should benefit with a higher than expected number, while the MBS market would benefit from a worse reading. Also out later today is the Philadelphia Fed survey which measures the strength of manufacturing around the Philadelphia region. Readings above 0 indicate a growing sector while readings below 0 indicate a contracting sector. Last month's report showed conditions improving coming in at -22.6 from -24.4 the prior month. Economists surveyed are expecting continued improvement with a reading of -15.0. MBS should benefit with a worse than expected reading.
Treasury Secretary Tim Geithner will be testifying before the Senate Banking Committee on regulatory reform at 930am, this will be televised on major financial media channels. President Obama announced sweeping reforms for the finance industry yesterday and Mr. Geithner will be questioned in detail on the administrations proposal. Of course, anytime Mr. Geithner speaks, market particapants will be listening intently.
The last signifacant event today will be the announcement at 11am est of the amount of Treasury notes to be auctioned next week. It is expected that $101 billion in 2 year notes, 5 year notes and 7 year notes will be auctioned off next week. With a new supply of debt coming to market, this will apply pressure on treasury yields to move higher in order to attract willing buyers. As treasury yields rise, that will apply pressure on MBS yields(mortgage rates) to move higher as well.
Thats about it for the day but we must always be aware of headline risk which is a unexpected announcement that moves the markets or changes investor sentiment. Matt and AQ will keep you posted throughout the day as events warrant, so make sure you check out the MBS Commentary blog. Rate sheets are not issued as of yet this morning, but if we hold present levels we should see 5.125% to 5.375% as the par interest rate for the best qualified consumers. The love market particapants have been showing MBS lately has suddenly disappeared, unfortunately this implies mortgage rates are likely to move a few bps higher this morning.