MBS feel beaten, battered and bruised just like the Boston Redsox. Mortgage backed securities opened this morning in the positive after yesterday steep sell off.
Today we are getting a plethora of economic reports:
- NY Empire State Index, expected to show a reading of -10.0 after last months -7.4. This came in at -24.6, much worse then expected.(MBS friendly)
- Retail Sales, expected to show a drop of -.4% after last months -.3% drop. This came in much worse at -1.2%(MBS friendly)
- Retail Sales excluding autos, expected to show a increase of .1% after the prior months drop of -.7%. This also came in much worse then expected at -.6%.(MBS friendly)
- Producer Price Index, expected to show a drop in prices of -.3% after the prior months drop of -.9%. This came in at a bigger drop of -.4%.(MBS friendly)
- Core Producer Price Index, expected to show a rise in prices of .2% after last months rise of .2%. This came in worse then expected at a rise of .4%.(MBS unfriendly) The year over year level is at a 17 year high.
Since these reports where released, mortgage backed securities have decided to give back all the gains they saw this morning and return to the lows of yesterday. It seems the one bad report is out weighing the other 4 friendly reports as it relates to mortgage backed securities.
Later today the Fed will release the Beige Book which is in insight to future moves by the fed. It is doubtful this report will have any effect on mbs'.
Tomorrow is another big day for economic reports with the release of the consumer price index and a few others. The consumer price index measures inflation on the consumer level and is more important the the producer price index which measures inflation on the producer level. The reason for this is that producers are less likely to pass along higher costs to the consumer.
Should you lock? Should you float? Who knows at this point. We are still in a very unique time with very little doing what it should. Playing it safe and locking is not a bad idea cause this roller coaster ride does not appear to have an end. Could we turn around quickly and see positive action in mbs, thus lower rates, absolutely. The question is when that might happen if ever. Historically, rates are still relatively low and we must all remember that.
Stayed tuned and we will get back to you with relavant data.