Tough day yesterday for mortgage backed securities and treasuries as both sold off.  During a sell off, the price of the fixed income security moves lower which increases the yield.  In total, MBS moved lower in price by almost a full point which lead to all lenders repricing for the worse with some repricing multiple times.  Better than expected economic data and higher than expected treasury issuance lead to the sell off. 

To recap yesterday, the Philly Fed index was released which gives a measure of the strenght of manufacturing in the Philadelphia area.  Expectations were for an improved reading of -15.0 but the actual release indicated a much better than expected reading of -2.0.  This has restoked the optimisim that the end of the recession is near.  Adding fuel to that fire was a better than expected leading indicators that came in at 1.2% vs expectations of only a 1.0% reading.   Piling on was the annoucement by the Treasury Department that $104billion of  treasuries will be auctioned next week which was slightly higher than the $101billion that was estimated.   So these reports, an improved continuing claims number (i discussed the jobless claims in yesterday's post) and the fact that MBS have been on quite a rally all lead to the rather large sell off.

Today brings us no economic reports to digest.  With the lack of economic data, MBS direction is going to be dictated by the movement of treasuries.  The 10 year treasury note hit a low yield recently of 3.58 but following the sell off, the 10 year closed over 3.80 in yield.  If treasuries continue to move higher in yield, MBS will be forced to follow.

During this recent run up with mortgage rates, many have questioned the silence from the Federal Reserve.  Remember, their intended goal is to keep mortgage rates low untll the housing market corrects.  Of high signifance next week is the FOMC meeting and accompanying statement.   It will be interesting to all market particapants what the Fed has to say and if they state any increases in treasury or MBS buying.  To remind readers, the Fed has stated that they intend to buy up to $300billion in US treasuries and $1.25trillion in MBS.  Some feel that if they announce more treasury buying, that will help to drive treasury yields lower taking MBS yields with them.  Next week should be interesting.

So far this morning, the downward pressure continues on fixed income.  Early reports from fellow mortgage professionals are indicating that the par 30 year fixed rate mortgage is in the 5.375% to 5.625% range for the best qualifed consumers.   If you would like to follow the price movements of MBS, you can CLICK HERE.