In A Word:

With ISM's Non-MFG survey yet to come, MBS are down ever so slightly on stronger than expected ADP private payroll numbers.  Mortgage applications are at a 6 year low.  Big surprise.  Stocks fail to charge out of the gate on the data, still disillusioned from yesterday's Lehman Brothers' concerns

To Lock or Float?

If the decision must be made today, and if you already have rates, and if those rates are only .125 worse in YSP than yesterday, locking feels like a slightly better than 50% recommendation.  I say this because stocks are relatively low and sold yesterday due more to fear and speculation than to data.  This same combination caused the rise in MBS.  So we may be poised for a bit of a turnaround today.  However, most lenders will have the risk of that turnaround priced into their sheets by the time they release, so take note of the difference in YSP between today and yesterday.  .125 suggests locking whereas .25 or worse suggests floating.  If you float, keep an eye on stocks as that has been the market mover to watch as far as MBS are concerned recently.  A decent rise in stocks or the 10 year yield are signs to check back here and potentially lock.  MBS is definitely "sell-biased" right now though, so again, smart lenders will price on the come and offer price improvements if the curve holds steady.  Actually, even in the time it takes to type this at a blustery 100WPM, the curve has sold off so much that a .25 worsening in YSP may suggest locking as well (look for .25 YSP closer to par and .125 YSP closer to 1.0 YSP or higher). 

The Numbers:

New Term: OTR ("on the run" which is an abbreviation you'll need to remember for the future, meaning the most current coupon settlement date for MBS)

6.0% FNMA OTR is only down 4/32nds on the morning

5.5 FNMA OTR down by 5/32nds

The News:

  • ADP Payrolls
    • Estimate Was for a 30k Decline
    • Actual was a 40k increase (a significant difference)
    • Stronger than expected employment data tends to be bad for MBS
    • ADP is historically not an accurate gauge of Friday's employment numbers
  • Challenger Job Cut Report
    • In contrast, this showed the worst level of job cuts in 2 years, further adding to the ambiguity about predicting Friday
  • Mortgage Applications
    • Came in at a 6 year low
    • This report is usually not a big mover of markets, but relevant to the industry nonetheless
  • Productivity and Costs
    • This report is yet to come and may have an impact on markets when it is released
  • Oil Inventories
    • comes later in the day and may bolster stocks if there is a surplus

On Tap For The Rest Of The Week:



    - JOBLESS CLAIMS, which is a weekly report of how many new applicants have come forward for unemployment benefits.  The more jobs lost, the better for mortgage rates.


    - EMPLOYMENT SITUATION.  This is a hugely important monthly report that tracks "non-farm" payrolls which is the most closely watched indicator of the labor market.  The lower the number, the better for rates.


ADP is a worthless report.  Sometimes it is right on, and sometimes it is so far off it's comical.  Productivity and Costs (when it is released in a few moments) in conjunction with stock sentiment will move markets.  With the price curve decreasing this morning, lenders will likely hedge prices to account for that, so you can likely float unless things get worse.  And if they do, you should receive cues from stocks and confirmation by checking back here.  The bigger variable and the bigger potential for movement comes on Friday with the Employment Situation report.  If you think it will be worse than the expected 60k job cut, float, otherwise, be ready to lock if we encounter any more selling.