Since the Fed statement on Wednesday, pressure on mortgage rates to move higher has grown.  The main driving force is the recent rise in treasury yields, the benchmark 10 year treasury note has rose 50bps since early April and  20bps since Wednesday!  The MBS Commentary blog dove into much greater detail. READ MORE about why rates are on the rise.

Onto the economic data for the day....

First, the University of Michigan released their monthly consumer sentiment survey. This data provides investors some insight into how the consumer feels about the economy and their own personal finances.  A positive consumer is more likely to spend money which is good for the economy and usually leads to money flows out of fixed income and into equities. This month consumer sentiment came in at 65.1 vs expectations for a reading of 61.9. 

The April survey showed consumer sentiment improving, providing another suggestion that the worst of the recession is behind us.  This was also confirmed by the Fed statement on Wednesday and the Consumer Confidence survey released on Tuesday of this week.   The positive outlook of late, has led to a very nice rally in the stock market but unfortunately, that rally comes at the expense of fixed income investments. 

Do you feel the worst of the recession is over or will this optimism be short lived?

Next, the Institute for Supply Management released their monthly ISM Index.  This report gives investors a gauge into the strength of the manufacturing sector of our economy.   A strong manufacturing sector is a signal of a sturdy economy, so MBS prefer a lower reading.   Readings above 50 indicate an expanding manufacturing sector and readings below indicate contraction.   March’s index edged higher which is an indication that manufacturing is declining at a slower pace.  Again, a hint that the worst of the recession may be over.  The report for this month was expected to show the index at 38.3 but it came in better than anticipated at 40.1.  This report should be bullish for equities but it appears that the upcoming shut down of many Chrysler plants due to their bankruptcy has mitigated the positive report, plus we still have the potential bankruptcy of General Motors to account for in the near future.

Lastly, the Commerce Department released the monthly Factory Orders report which measures the dollar level of new orders for both durable and non durable goods.  February’s report showed a sharp jump in orders but fell short of economists’ expectations and last month’s report showed orders to have declined by .8%.  Increasing factory orders is a signal of future economic growth, so MBS prefer a lower reading.   Factory orders actually fell 0.9% in March when economists’ had only expected a 0.5% drop. 

So far this morning MBS prices have continued to move lower.  Early reports from fellow mortgage professionals are indicating that at least one lender is still offering 4.625% at par for a 30 year conventional rate mortgages, but most lenders are pricing par 30 year fixed rate conventional mortgages in the 4.75% to 5% range.

If you are still on the sidelines waiting for lower rates, you may want to consider jumping off.   Each time, as I pointed out earlier this week on Tuesday’s blog, we have approached 4.5% as par, rates stayed there for a day or so, than started to move higher.  With treasury yields on the rise due to the massive supply coming to market and optimism that the worst of the recession is over, it is going to be very difficult for mortgage rates to move lower.   We still have the Fed support with over $800billion left to be spent on MBS, but they cannot do it all. 

If you would like to get intraday updates, click over to the MBS Commentary blog.