Well, the Lehman saga is coming to a conclusion. They have filed for chapter 11 bankruptcy and in a flight to quality(where investors pull money out of equities and into the safe haven of fixed income), mortgage backed securities are back where they were after last weekends big news regarding fannie and freddie. In other big financial news, Bank of America has bought our Merrill Lynch. Today brings us only 2 relevant economic reports which appear to be of no interest to investors in light of the Lehman saga. First the New York Empire index, which is a gauge of the strength of the manufacturing sector across New York, came in much lower then expectations. The consensus was for a reading of 1.4 but came in much worse at -7.4. We also had the release of industrial productions, which is a measure of the strength of our manufacturing sector. This report is very relevant to us as stronger economic growth typically leads to higher inflation, which is bad for fixed income investments such as mbs. The consensus was for a reading of -.3%, but came in much worse at -1.1%. Remember, bad news for the economy is generally good news for fixed income investments such as tresuries and mortgage backed securities.
Tomorrow brings us a very important reading on consumer inflation with the release of the consumer price index which measures inflation on the consumer level. The last few inflation reports where basically over looked by investors in light of other news. It will be interesting to see if these reports tomorrow, which historically move the fixed income markets, has any influence over investor sentiment.
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