Though there are a few other economic reports today, two items dominate the tenor of the day: Durable Goods Orders and the trading price of Crude Oil.

1. Durable Goods

    This report measures purchasing by manufacturers which is a valuable and closely watched gauge of impending market conditions.  The more producers are ordering, the better for stocks and worse for bonds (generally).  This is exactly the case this morning.  Although the headline reading, which is all-inclusive fell by .5%, the core reading which excludes the transportation industries, was up 2.5%, much  much stronger than the expected .7% decline. 

2. Oil Prices

    Crude Oil continues to drop in price as global demand wanes.  The lag in the price versus demand curve is becoming apparent.  At first, demand seemed fairly inelastic as consumers weren't phased by four dollar gas.  But now that they can see the impact on their checking account at the end of the month, there are signs that demand has been and will continue to be dialed back.  Add the "fear factor" of future high gas prices, which drives demand for alternative energy and oil traders are worried about their prices in the short term.  

Neither one of these items are good for bonds.  The Durable goods report slammed the MBS price curve at 830AM and there was an immediate sell off in 5.5% coupons from 99-30 to 99-19.  That alone would be good for a .375 price worsening today on rate sheets.  But lenders will hedge their bets and probably hit us for .5 or more.  Oil compounds the problem as the price relief creates more demand for stocks, which can pull money out of the bond market.  

Yields on 6% + mortgages should fare a lot better as a majority of the buying shifts up in coupon from 5.5's to the 6.0's and above.  Servicers are planning on a majority of business being executed at those levels based on the current economic data, so their increased buying demand at those higher coupons keeps prices higher relative to 5.5's.  6.0 coupons are only off 7/32nds compared to 11/32nds and 14/32nds in the 5.5 and 5.0 coupons respectively.

There is no more data set for release today and floating makes a lot of sense as the damage has likely already been done.  But locking must be reassessed at throughout the day and Thursday and Friday's economic reports must be considered.