Mortgage backed securities posted big gains yesterday following a surprisingly  strong 10 yr Treasury note auction.    The bid to cover ratio, a measure of demand, was 3.28 bids for every 1 awarded,  the highest demand this year by far. Indirect bidders were awarded  44% of the issuance.  For a recap of bid to cover and indirect bids, read my blog from yesterday CLICK HERE.  All lenders did reprice for the better with many giving multiple price improvements as the gains held all the way to close.  So far today MBS have given back a portion of yesterday's gains, this is nothing to panic about as our benchmark big brothers, Treasuries, were a bit overbought and due for some profit taking.

We do have some data this morning that will affect the flow of money between equities and fixed income.  The U.S. Department of Labor released the weekly jobless claims report. This data set totals the number of Americans who filed for first time unemployment benefits for the prior week.   Initial claims for the holiday shortened week of July 4^th fell 52,000 to a lower than expected read of 565,000 new claims.  Last week's claims were revised higher from 614,000 to 617,000.  The continuing claims, which totals the number of Americans that continue to file due to lack of finding a job, moved significantly higher to a new record high of 6.883 million from 6.724 million last week.

At 1pm eastern, the US Treasury Department will hold its final auction for the week with $11billion of 30 yr bonds up for sale.   Like all treasury auctions, market participants will be looking at the bid to cover and demand from foreign accounts to measure the success or failure of the auction.  Strong demand will help MBS regain some of the losses from this morning.   Matt and AQ  tell me primary dealers are a not as long on the long bond as they were two weeks ago. HAHA, wow those two get deep into their analysis. What that means for you is there is room for primary dealers to buy at the auction. They will cover this auction once it is completed on the MBS Commentary blog.

Early reports from fellow mortgage professionals are showing mortgage rates to be slightly worse than the last rate sheet issued yesterday due to the weakness in MBS this morning.  However, since the data releases, MBS have moved higher in price, recapturing almost all of the losses that were incurred following the jobless claims report.  Most lenders priced at the lows of the day, so if we can hold current levels most lenders should pass along better pricing.  We speculate reprices, if they come at all, wont be awarded until after the auction results are released.

If you are currently floating, you might want to hold off on locking any loan this morning and allow lenders time to pass along better rate sheets.  However, we must remain defensive.  A bad auction today will have a negative effect on MBS which could result in higher borrowing costs. At the moment well qualified consumes should be able to get a 30 year fixed rate mortgage in the 4.875% to 5.125% range.  In order to qualify for this par rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including 1 point loan origination/discount/broker fee.   Since we are finally seeing rates under 5% again and many people missed the boat last time thinking rates would continue to drop.  As I have said many times on my blog, any time you can lock a 30 year fixed rate mortgage under 5% it is a good idea to consider locking.