Yesterday, mortgage backed securities (MBS) had a stable day which allowed a few lenders to reprice for the better. Overall mortgage rates moved slightly lower after the long holiday weekend. 


What's Moving Money Today....


So far this morning, despite some very friendly MBS data, mortgage rates are holding steady near yesterday's closing rate levels


Before we get to the data I should remind all that we are currently in the midst of corporate earnings season.  During this time, I will spot light a few "money moving" earnings reports from various companies focusing on financials since they are the most relevant to the mortgage industry. 


Goldman Sachs, a recipient of TARP money, pre-released much better than expected 1Q earnings per share and 1Q revenues.  This is the 2nd financial institute, Wells Fargo being the other, who reported better than expected earnings.  Goldman also indicated that they intend to issue more common stock in effort to raise $5 billion so they can pay back their TARP funds.  This news will dilute the earnings potential for current shareholders but will create a buying opportunity for new entry equity investors. Unfortunately this will encourage investors to move money from bonds to higher yielding stocks. 


The US Department of Labor released producer price inflation data this morning. This report measures inflation on the producer level and has very influential implications for fixed income (bond) markets. Consumer inflation data is however slightly more important due to the fact that companies have several means by which to spread around higher prices (as opposed to passing them directly to consumer).  There are 2 readings released with this report, core inflation and overall inflation.  The core reading strips out food and energy due to their volatility.  The month to month core reading was expected to show producer prices rising 0.2%; the actual reading indicated no change from last month (0.0%). The headline producer inflation number unexpectedly declined 1.2% from February, much lower than economist forecasts.  So, we have yet another report confirming that a deflationary spiral is much more applicable compared to inflation worries (it will become a problem down the road though).  Since inflation is the biggest enemy to mortgage rates, this report is very favorable for MBS, however, as has been the trend lately, MBS remains insulated from individual economic reports (that dont move money from stocks to bonds or from bonds to stocks).


Also today we received perhaps the most important data of the week: retail sales report.  Since consumer spending accounts for 2/3rds of our economy, investors pay this report a lot of attention.  Our economy will not recover until the consumer starts to spend.  Economists expected this report to indicate retail sales had increased by 0.3% from the prior month, unfortunately the number came in weaker than forecasted, a month over month decline of 1.2%!!!  When excluding auto sales, retail sales were still weaker than expected, a 0.9% month over month decline. Economists were expecting a flat 0.0% reading.   Retails sales were weak in all areas with electronics and appliances showing the largest declines.  This report took the wind out of the sails of optimistic investors, the stock market immediately moved lower on the news. Stock markets moving lower implies money flowing into fixed income securities and support for lower mortgage rates.  But, once again, MBS remains insulated from major swings in money flows. Mortgages continue to take only "directional guidance" from the "stock lever" and its effects on Treasury yields.


At 10AM we got the release of business inventories.  Economists had expected business inventories to show a month over month decline of 1.0%, but this also came in worse than expected at a month over month decline of 1.3%.


In a sign of the crazy times we live in today, we got 2 reports this morning that are very favorable for MBS but we are not getting any love, yet. In a speech last night, Ben Bernanke made forward looking comments on his hope for sunny days ahead. This served to create some optimism in stock markets which will offset potential gains in MBS.


President Obama is scheduled to deliver a "MAJOR" speech on the economy any minute now.  All ears will be tuning in to see what he has to say. Headline news always remains a possible money mover.   I suspect President Obama will speak of brighter days ahead and attempt to highlight the positives of his young administration.  Remember, just a month or so ago the Dow was at 6500!   Check out MBS Commentary for mortgage updates after he reads President Obama reads speech (off the teleprompter :-D).  I will post an update later today if mortgage rates move higher or lower.


Early reports from fellow mortgage professionals have shown at least one lender offering 4.5% as par rate this morning.  To qualify, you must have a 740 FICO credit score, pay all closing costs and 1 point