Last week mortgage backed securities, the investment vehicle behind mortgage rates, traded relatively flat and closed the week slightly improved.  During the week, mortgage rates did improve modestly as lenders lowered borrowing costs .125 to .375 in points.


So far this morning, MBS prices are moving higher as global equity markets are once again feeling pessimistic, this will serve to aid in the process of lower borrowing costs.  At this point in the morning I suspect we will see par 30 year conventional rate mortgages any where from 4.50% to 4.75% when lenders publish rate sheets.  Aggressive lenders continue to offer added incentives to borrowers with pristine loan files. Pristine loan files generally implies low loan to values and high FICO scores. After added incentives some consumers may qualify for 4.375% with reduced discount points.  


The week ahead is full of economic data with the most influential report, Non-Farm Payrolls (The Employment Situation Report) scheduled for release on Friday.




Chicago PMI, a survey of economic conditions in the Chicago area.  Readings under 50 indicate a contracting economy and readings over 50 indicate an expanding economy.   Last month we got a reading of 34.2. The consensus for this month is for a reading of 34.0.


Consumer Confidence, a survey of consumer attitudes on present economic environment and their outlook of future economic conditions.  A less confident consumer is more likely to save money vs. spending money. The mortgage backed security market generally improves with a lower reading and stock markets generally improve when consumers show more confidence as increased spending often times leads to higher corporate profits.  Economists are expecting a 28.0 reading after last months record low reading of 25.0.




ISM Manufacturing Index is a manufacturing survey that provides investors some insight into the strength of the manufacturing sector of our economy.   This report is similar to the Chicago PMI in that readings below 50 indicate a contracting manufacturing sector and readings over 50 indicate an expanding sector.  Last months reading came in at 35.8. Economists are expecting a reading of 35.0 this month.  Mortgage Rates generally improve with a lower reading.


Construction Spending shows investors whether construction spending is increasing or decreasing.   Economists are expecting this report to show construction spending to have decreased by 2.0% after last months 3.3% drop. 


Pending Home Sales is a leading indicator of housing activity for existing homes (not newly constructed).   A pending sale is one in which a contract has been signed but the loan has not closed.  With tighter underwriting standards, there are many more home sales that fallout due to loan denial.  Economists are expecting this report to show a decline of 1.5% after last months 7.7% drop.




Weekly Jobless claims, economists are expecting 650,000 people to have filed for unemployment insurance in the last weekly reporting period.  Higher unemployment allows companies to attract new employees and retain current employees without offering higher wages which leads to wage based inflation (although I have been hearing Adam ranting and raving about sticky wages lately).  Since inflation is the biggest enemy to mortgage rates, MBS prefer a higher number.  Adam and Matt have been discussing the implications of growing unemployment rates and their relationship to mortgage default rates and MBS. We are all hoping that the US government is successful in their attempts to jumpstart the economy so their growing portfolio of MBS does not begin to lose value as delinquency rates increase.


Factory orders represent the dollar value of new orders for durable and nondurable goods placed by factors.  If factories are increasing the amount of goods they are ordering, it would be a sign of increasing business.  The MBS market prefers moderate growth and the stock market prefers more robust growth.  So a lower reading is seen as a positive for the MBS market.  Last month this report showed a decline in factory orders of 1.9% and economists are expecting another decline of 1.3% for this month.




The Employment Situation Report: Non Farm Payrolls....the most influential economic report. Represents the number of jobs created or lost over the previous month.  Economists are expecting another huge loss of 650,000 jobs after last months 651,000 loss.  Regardless of expectations, data that indicates monthly job losses in the 600,000 range is a scary sign of things to come for our economy.


The Unemployment Rate measures the number of unemployed as a percentage of the entire workforce.  Last month this came in at 8.1% and it is expected to climb to 8.5% this month. 


ISM Services Index which is a survey that shows the strength of the non manufacturing segment of our economy.  Economists are expecting this report to show a reading of 42.0 after last months 41.6.  Readings below 50 indicate a contracting economy and readings over 50 indicate an expanding economy. This data may be overlooked given the Job's data the market will be digesting on Friday Morning.


For a recap of what happened last week, read MBS Weekly on the MBS Commentary Blog. 


For intraday market updates read Adam and Matt’s MBS Commentary.  Have a great Monday!!