The Data:

1. Jobless Claims:

        Expectation: 360k ...............Actual 351k
          Impact: This is not much of a deviation from expectations.  Furthermore, even though this read is slightly better than                                 expected, the total number of claims remain high historically.

2. Chain Store Sales
         60% of chain stores had higher than expected sales of 1.1% increase, most notably Wal-Mart at 2.6%.
       Impact: This definitely doesn't help mortgage rates this morning, but it doesn't hurt much either.  Of course Wal-Mart will               flourish in a down economy.


What a week!  The US 10-Year is improved by 10/32nds and we're worse 10/32nds on MBS.  Oh cruel fate!  Why?!  It's pretty obvious that MBS are the last kid to get picked for the kickball team these days, meaning investors not only don't want to buy them compared to treasuries, but sellers of MBS are eager to sell.  That's not a good scenario as it lowers prices and raises mortgage rates.  The discrimination can come from many factors:

   1. Quality Demand.  The perception of MBS quality is waning relative to treasuries due to trickle up fear from non-agency MBS crashing, plus very poor earnings reported by GSEs (fannie and freddie)

   2. Where's the cash?  The big boys need cash as they continue to write down billions.  One way to get it is to sell MBS. Hey!  Even though they're getting cheaper by the day, selling MBS creates more cash, more quickly than selling treasuries.  Still, the spread between the two is so many standard deviations from the mean at this point that I lost count.  I think I'll crack the old business school econ book and see what that means.  I do know you want your company to be "six sigma," but you don't want your MBS spread to be! 

 3. Inflation?  Yeah, it may be a factor, but then why all the buying of treasuries this morning?  I don't think inflation is as much on the minds of traders today.  We're dealing more with the impacts of the two previously mentioned factors.

At any rate (no pun intended), traders don't want MBS right now, though we are seeing some buyers coming in at this point to take advantage of the low prices.  As such, the 5.5% coupon stack is significantly up from it's lows of the morning, now down only about 8/32nds.  So unless that ticks up here in the next half hour, look for another approximately .25-.375 rebate missing from your rate sheets this morning.  We might only lose .125 in some of the higher coupon stacks.

Hopefully some time soon, the MBS supermarket will be perceived for what it is: the Wal-Mart of the fixed income market, and buyers will come in droves as they hit themselves on the head saying: "Oh, that's a way higher yield than I can get on that old 10 year."  The reason that hasn't happened again, is likely the negative buzz on other MBS and fears that agency MBS (which is the stuff we always track) will follow suit.

But, I don't know when the discount superstore frenzy will happen or even if it will happen.  On a technical analysis, we've moved under all the moving averages that serve as floors.  We've even crossed the 200 day moving average today!  Bad news!  We crossed the hundred day average several days ago.  The last time that happened, we stayed below that mark for months.  So buckle in for a bumpy ride.