Mortgage backed securities managed to end their recent run of price declines, posting nice gains yesterday. After the MBS rally most lenders did reprice for the better. To remind readers, as MBS move higher in price mortgage rates move lower. When looking to market fundamentals behind this rates rally some say a flight to quality ensued after bearish comments from  Fed governor Dennis Lockhart. Other point towards speculative bargain buying ahead of Chairman Bernanke's semi-annual report to Congress on monetary policy.

The economic calendar today is empty so market participants have been focused on Ben Bernanke's testimony on Capitol Hill.  Today he is delivering his semi-annual monetary policy testimony to the House Financial Services Committee. Most of what Chairman Bernanke said was "as expected", notably stocks moved lower as Bernanke highlighted the fact that the US was likely to endure a long recovery process as economic growth is expected to be slow. After some early morning weakness, Treasuries rallied on this news as investors moved into safer assets, we refer to this as a flight to safety rally. MBS prices have benefitted from this feeling of risk aversion and mortgage rates have ticked a few basis points lower today.

In other news from Capitol Hill, yesterday the House Appropriations Committee approved the Housing and Urban development budget for 2010. The approved appropriations include an extension of the loan limits  as defined by the 2009 American Recovery and Reinvestment Act. This means through 2010, borrowers in high cost areas will be able to utilize GSE/HUD funding for loans up to $729,750. This is the max loan amount a borrower could obtain using GSE/HUD loan programs, however it should be stated that you must live in a high cost lending area to obtain max loan amounts. Each county varies. HERE IS A LINK TO DETERMINE YOUR AREA'S MAX LOAN AMOUNT

Anthony Hood

888-935-2525 Ext 4021

www.equityinvestmentcapital.com

On the surface, the economic data yesterday favored the stock market over the fixed income market, but as the markets had time to digest the less superficial aspects of the reports, mitigating factors helped ease bond losses and keep a stock rally in check. Today we get several important data sets that will set the trend for today.

First out this morning is the weekly Mortgage Bankers’ Association applications index which tracks the weekly change in mortgage applications at major lenders. An increasing trend in purchase activity would be seen as a positive indicator for equities as home purchases lead to many other purchases including furniture, flooring, appliances, etc… Also, one would have to feel very confident in their own financial position and job security to purchase a new home, so economic factors relating to consumer confidence are also in play. The report has shown a large decline in purchase activity from last week moving lower by 9.4% and pointing to continued troubles in the housing market. Many economists and talking heads have stated that housing is a critical component of our potential recovery and although reports on housing and mortgages can vary greatly from week to week, this one is certainly not indicating an imminent recovery. On a positive note the refinance activity improved again last week moving higher by 18%. The increase in refinance activity can be attributed to the recent decline of mortgage rates back to the 5% mark.

In other data, the US Department of Labor released the monthly Consumer Price Index(CPI) which measures the price change of a fixed basket of goods and services at the consumer level. One of the biggest enemies of mortgage rates and indeed of bonds in general, is higher inflation. To explain why this is with broad strokes, if inflation decreases the value of today’s money, and fixed income investments pay a guaranteed return of today’s money, then the greater the inflation, the less and less a fixed income investment would return. Of course it’s going to return the amount of money it promises (one hopes), but if you’re planning on getting $1000 back in a year on a fixed income investment and inflation is so bad that, in a year from now $1000 only buys two cheeseburgers, the VALUE of your investment is obviously not as high as it is today when that same $1000 could buy a new TV and a week’s worth of cheeseburgers. Sounds like mortgage blogger paradise to me…

Back to the point, today’s data indicates a slightly higher than expected rate of inflation but most of the increase can be attributed to higher gasoline prices as was the case with yesterday’s PPI report. The headline CPI came in right on expectations at a month over month increase of .7% but year over year CPI posted a -1.4% decline which is the biggest decline since 1950! The core rate, which strips out volatile food and energy prices posted a slightly higher read of 0.2%. The market had anticipated only a 0.1% increase to the core rate. Year over year the core rate has risen by 1.7% which is well within the Fed’s comfort zone for inflation and better than last month’s 1.8% reading. Our economy needs inflation to grow and the Fed would like to see core inflation between 1% and 2%. With the recent decline in oil prices, this trend of higher consumer prices is not likely to continue. Following the release of this report, MBS have continued to move lower which will result in higher consumer borrowing costs.

The New York Fed has released the monthly Empire State Manufacturing survey which gives market participants a read on the strength of the manufacturing sector around the New York area. Readings below 0 indicate a contracting sector while readings above 0 indicate expansion. The release has indicated a much better than expected reading of -0.55 versus expectations of -4.5. This is a sizable improvement over last month’s -9.4 and contributes to the case for recovery which. As you know, most of data that are good for the recovery are bad for bonds, so this certainly did not help this AM’s situation.

The final data set this morning is the release of Industrial Production down -0.4% versus a consensus of -0.7%. This report shows how much factories, mines and utilities are producing and better than expected readings are generally good for stocks and bad for bonds. In May, this data set posted a drop of -1.1%. But remember, this is still a decline and “less bad” doesn’t necessarily equal “good.”

If you are keeping stats, the economic data, except for purchase applications, is all negative for fixed income. The downward pressure on MBS prices is continuing and so far this morning has posted another .25 in discount drop. This trend may be short-lived as we still have the FOMC minutes later today, jobless claims tomorrow and earnings reports to digest. Like yesterday, for MBS to manage any type of rebound they will need the stock market to move lower. That looks to be a difficult challenge this morning as stock market futures are pointing to a significantly higher open. If the stock market does change course, it will allow for money to flow back into treasuries first than into MBS. Currently, the benchmark 10 year note is continuing to move higher in yield and is trading at 3.54. Just last week, it was trading under 3.30! One reason we feel the current market has not set a firm trend is that the trading volume is extremely low. If market participants really feel the economy has turned, the rally in the stock market would see much higher level of trades. This is a key indicator of the market waiting for guidance but unfortunately the rally in the stock market is at the expense of the fixed income sector.

At 2pm eastern, the Federal Reserve will release the minutes from their last Federal Open Market Committee. Most of the information in the minutes will already be known, but market participants will review it thoroughly for any hints of future monetary policy and outlook on the economy. Matt and AQ will post any relevant details after the release on the MBS Commentary blog.

Early reports from fellow mortgage professionals are indicating the mortgage rates continue to move higher. The par 30 year fixed rate conventional mortgage is in the 5.00% to 5.25% range for the best qualified consumers. In order to qualify you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including 1 point loan origination/discount/broker fee. If you are accessing home equity, you should expect to pay higher costs or take a higher interest rate. For consumers seeking FHA or VA loans, expect the rate to be about .25% higher than conventional loans.

After spending the majority of the session in a stable range yesterday, prices of mortgage backed securities lost their steadiness and ticked lower heading into the close forcing most lenders to re-price for the worse, increasing mortgage rates. The bond market sell off was a factor of the stock market moving higher as traders set up for better than expected Goldman Sachs earnings. This morning those expectations were confirmed as Goldman reported Q2 diluted earnings per share of $4.93, easily beating forecasts. Later in the week JP Morgan Chase, Bank of America, and Citi will report earnings, look for the market to buy the rumor, and sell the news...meaning earnings reports will likely be priced into the market before they are released which will make for some illogical price movements following earnings posts.

We do have some data this morning that will affect the flow of money: The Producer Price Index. PPI measures the changes in prices that manufacturers and wholesalers pay for goods during different stages of production. If businesses have to pay more for the materials they use to produce their widgets …they are mostly likely going to pass along those additional costs to you…the consumer. The Producer Price Index is broken down into three progressive stages of production. Crude Goods, Intermediate Goods, and Finished Goods. Finished goods is considered Headline Producer Inflation. The cost to produce a finished goods is affected by the cost of the entire production cycle so one should note which stage of production is adding the most cost to the final product. Here is a breakdown of the production stages and data points.

Crude Goods: raw materials like commodities. Susceptible to supply shocks ( Oil crisis during summer of 2008)

Intermediate Good: partly finished good used in production of another good. Good has already undergone some transformational processing. (paper, car parts, fabrics)

Finished Goods: good that is ready to be sold to consumer. Inflation at this stage in the production process is usually passed along to the consumer

Core PPI: strips out the volatile costs of food and energy

Headline PPI: includes food and energy costs

This morning the report indicated that prices rose much more than anticipated last month with headline inflation surging by 1.8%, a full percentage point higher than forecasts. The core reading also rose higher than expected at 0.5% vs 0.1%.

Most of the increase in prices is being attributed to the recent spike in oil price. Over the last few weeks, oil has moved sharply lower so this trend is likely not to continue and is mitigating reactions to the quite negative report. Year over year, PPI is down 4.7% and the core is up 3.4%. This worse than expected reading on inflation will likely cast a larger light on the Consumer Price Index when it is released tomorrow.

Also out this morning from the U.S. Department of Commerce is the Retail Sales report, which measures the total sales at retail stores. Since our economy is driven by consumer spending, the stock market tends to rally with a better than expected reading. The release indicated that overall sales increased 0.6% in June, a better reading than the 0.5% forecast. Still, the report indicates soft consumer spending as much of the advance is due to the increase in gasoline prices and vehicle sales. Excluding auto sales, the data fell short of expectations of a 0.6% increase by only posting a 0.3% rise. When excluding auto sales and gasoline, retail sales posted a month over month decline of 0.2%, indicating that the consumer is still not spending money. On a year over year basis, retail sales are down 9% -- an improvement from last month’s annual decline of 9.8%. When excluding auto sales, the year over year change moved lower to -7.9% from -7.6% in May. Even though the headline reading is quite positive, once you dig into the numbers it isn’t as positive as it looks.

After the release of PPI and Retail Sales, MBS prices moved lower but have since regained the losses suffered after the data hit the wires. It appears that market participants are more focused on earnings reports than reading through the data at the moment. For MBS to regain yesterday and today's price losses we need a couple things to happen. First, the stock market will have to move lower, specifically the S&P will need to break 870. If that happens, we should then see more money flow into fixed income as investors seek safer assets...specifically Treasuries. This will help MBS prices move higher and mortgage rates move lower. In the past two weeks this trend started but earnings season has stalled confirmation. Now we must wait for earnings reports to provide the stock market with new direction. The market's gyrations this week will likely be predicated off of earnings reports. Mortgage rate watchers will likely receive no confirmation of "trends to come" until important earnings releases are posted.

Early reports from fellow mortgage professionals are indicating that mortgage rates have ticked higher with the par 30 year conventional rate mortgage in the 5.00% to 5.25% range for the best qualified consumer. In order to qualify you must have a FICO credit score of 740 or higher, a loan to value at 80% or less, and pay all closing costs including one point loan origination/discount/broker fee.

If you are planning on keeping your home for less than 3 years, you should consider paying less in closing costs and taking a higher interest rate. Today’s rates without paying the one point loan origination/discount/broker fee is in the 5.375% to 5.625% range for the best qualified consumers. Keep in mind: getting a mortgage rate is like buying anything else. If you want a better attorney, you will pay more. If you want a better car, you will pay more. If you want a better interest rate, you will pay more.

Last week, progress was made in the mortgage market as Treasuries rallied and prices of mortgage backed securities moved higher. By week's end "rate sheet influential" MBS coupons improved in price by almost 0.50 discount points, bringing the par 30 year fixed rate mortgage back under 5% for the first time in almost two months.  This rally in fixed income was led by a shift in investor sentiment from recovery  to a stagnate economic outlook.   This shift has resulted in market participants liquidating their risky equity positions and moving money into safer/risk averse  fixed income assets like MBS and Treasuries.  

The week ahead has several scheduled data sets that will have an impact on the investment outlook for financial markets.  To remind readers, better than expected economic data is generally a positive for stocks while worse than expected data is generally positive for lower mortgage rates.  

Today is the lightest day for economic data with the only data set being the Treasury Budget which is a monthly account of the surplus or deficit of the federal government.  May's budget report showed that the US government had a deficit of $189.7 billion dollars and the consensus for June is another deficit of $97.0billion.    Unless this report varies greatly from expectations, it usually isn't a  major market mover.  This report is released at 2pm eastern by the U.S. Department of Treasury.    

Tuesday

• - Producer Price Index(PPI) which measures inflation at the producer level, will be released at 830AM. Last month's report showed producer prices increasing 0.2% following April's 0.3% increase. Economists surveyed expect June's number to post a month over month gain in headline prices of 0.8% and when excluding food and energy a 0.1% increase. The recent increase in oil prices will likely be the cause of the increase to the headline number. MBS tend to benefit with lower readings.
• - Retail Sales, which measures the total receipts at stores and indicates the month over month change, will also be released at 830AM. Since our economy is driven by consumer spending, this report has the ability to move money in the financial markets. As we have stated recently, for MBS to improve the first thing that must happen is for equities to confirm their recent bearish bias. If this report indicates strength, the recent "flight to safety" rally in the fixed income markets could be unwound which would result in higher mortgage rates. May's report came in surprising strong at a month over month increase of 0.5%. For June, economists surveyed are expecting another 0.5% increase. When excluding auto sales from the report, the consensus is for a month over month increase of 0.6%.
• - Goldman Sachs Releases Earnings Report               

Wednesday

• - At 7am eastern, The Mortgage Bankers' Association Weekly Applications index will be released which tracks the month over month change in purchase and refinance activity at major lenders.Last week's report indicated that purchase and refinance activity improved from an eight month low as mortgage rates have moved lower from recent highs. As mortgage rates continued to fall last week, we suspect this report will indicate further borrower interest in new mortgage loans. This data set will likely be ignored as market participants will be focused on the consumer inflation report.
• - At 8:30am eastern, the US Department of Labor will release the Consumer Price Index(CPI) which is a measure of the average price level of a fixed basket of goods and services purchased by consumers. With the recent rise in energy prices, economists surveyed are expecting the headline reading to come in at a month over month rise of 0.7% following May's 0.1% rise. When excluding food and energy from the reading, expectations are for a month over month rise of 0.1% matching May's report. The Federal Reserve has stated many times that inflation is not a immediate concern and recent economic data has backed that up.
• - At 830 am the Empire State Manufacturing Survey will be released by the New York Fed. They survey about 175 manufacturing executives across New York and the results of the survey indicates whether manufacturing is expanding or contracting. Strong manufacturing is a positive for the stock market while MBS tend to benefit when manufacturing is weaker than expected. Readings above 0 indicate an expanding sector while readings below 0 indicate a contracting sector. Last month's report showed that manufacturing worsened to -9.4 from the prior month's -4.55.Economists are expecting this month's report to read -4.5.
• - 915am: Industrial Production. This data set gives market participants an idea of how much our nation's factories, mines and utilities are producing. An increasing trend is a positive signal for a growing economy, so MBS tend to benefit with a lower than expected reading. May's report showed that industrial production dropped 1.1% and economists surveyed are expecting June's report to show a slight improvement to -0.7%.
• - The Federal Open Market Committee(FOMC) will release the minutes from the last fed meeting. Most of the information from the minutes will already be known, but market participants will still review for any hint at future monetary policy, their outlook on inflation and their outlook for the overall economy.

Thursday

• - 830AM: Weekly jobless claims. This release totals the number of Americans that filed for first time unemployment benefits for the prior week. MBS tend to benefit with higher unemployment as that would keep wage pressures down. If unemployment is high, employers do not need to attract new employees by offering higher wages, they can just offer a job. Last week's report came in surprisingly better than expected at 565,000, however it should be noted that this print only accounted for a four day week. Economists surveyed are expecting this week's report to show continued improvement with only 535,000 new claims. A higher than expected reading would add further confirmation to the notion that the economic recovery will be a long drawn out process.
• - 10AM: Philadelphia Fed Survey. This data set gives market participants a read on the strength of manufacturing around the Philadelphia area. Last month's report indicated a sharp improvement in conditions coming in at -2.2 following the prior month's -22.6. Economists surveyed are expecting a slight pull back on this month's reading with a -5.0. Readings below 0 indicate a contracting sector while readings above 0 indicate expansion.
• - JP Morgan will publish earnings report 

Friday

• - 830AM: Housing starts. This data totals the number of new homes that construction has begun. An increasing trend in housing starts would be a positive signal for stocks since the construction of a new home would lead to purchases of flooring, appliances, plumbing, etc... Also, an increasing trend in housing starts would be positive for employment as more homes being built would require hiring of construction workers. May's report indicated a 17.2% increase following April's 12.9% drop. Economists surveyed are expecting a slight dip to an annualized pace of 530,000 following May's 532,000 pace.  

So far today, although stocks are rallying, Treasuries and MBS are mostly flat.  Early reports from fellow mortgage professionals are indicating that mortgage rates today are very similar to Friday's.  This places the par 30 year fixed rate mortgage in the 4.875% to 5.125% for the best qualified consumers.  In order to qualify you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including 1 point loan origination/discount/broker fee.  If you are planning to access home equity (cash out), you should expect a slightly higher interest rate or be prepared for higher fees due to the loan level price adjustors.

Mortgage backed securities posted big gains yesterday following a surprisingly  strong 10 yr Treasury note auction.    The bid to cover ratio, a measure of demand, was 3.28 bids for every 1 awarded,  the highest demand this year by far. Indirect bidders were awarded  44% of the issuance.  For a recap of bid to cover and indirect bids, read my blog from yesterday CLICK HERE.  All lenders did reprice for the better with many giving multiple price improvements as the gains held all the way to close.  So far today MBS have given back a portion of yesterday's gains, this is nothing to panic about as our benchmark big brothers, Treasuries, were a bit overbought and due for some profit taking.

We do have some data this morning that will affect the flow of money between equities and fixed income.  The U.S. Department of Labor released the weekly jobless claims report. This data set totals the number of Americans who filed for first time unemployment benefits for the prior week.   Initial claims for the holiday shortened week of July 4^th fell 52,000 to a lower than expected read of 565,000 new claims.  Last week's claims were revised higher from 614,000 to 617,000.  The continuing claims, which totals the number of Americans that continue to file due to lack of finding a job, moved significantly higher to a new record high of 6.883 million from 6.724 million last week.

At 1pm eastern, the US Treasury Department will hold its final auction for the week with $11billion of 30 yr bonds up for sale.   Like all treasury auctions, market participants will be looking at the bid to cover and demand from foreign accounts to measure the success or failure of the auction.  Strong demand will help MBS regain some of the losses from this morning.   Matt and AQ  tell me primary dealers are a not as long on the long bond as they were two weeks ago. HAHA, wow those two get deep into their analysis. What that means for you is there is room for primary dealers to buy at the auction. They will cover this auction once it is completed on the MBS Commentary blog.

Early reports from fellow mortgage professionals are showing mortgage rates to be slightly worse than the last rate sheet issued yesterday due to the weakness in MBS this morning.  However, since the data releases, MBS have moved higher in price, recapturing almost all of the losses that were incurred following the jobless claims report.  Most lenders priced at the lows of the day, so if we can hold current levels most lenders should pass along better pricing.  We speculate reprices, if they come at all, wont be awarded until after the auction results are released.

If you are currently floating, you might want to hold off on locking any loan this morning and allow lenders time to pass along better rate sheets.  However, we must remain defensive.  A bad auction today will have a negative effect on MBS which could result in higher borrowing costs. At the moment well qualified consumes should be able to get a 30 year fixed rate mortgage in the 4.875% to 5.125% range.  In order to qualify for this par rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including 1 point loan origination/discount/broker fee.   Since we are finally seeing rates under 5% again and many people missed the boat last time thinking rates would continue to drop.  As I have said many times on my blog, any time you can lock a 30 year fixed rate mortgage under 5% it is a good idea to consider locking.

After making little to no ground during the holiday shortened work week, mortgage backed securities are still in search of clear direction. Last week MBS closed at the same level at which they opened on Monday, even a very poor Employment Situation report was unable to increase demand for "rate sheet influential" MBS coupons. To remind readers, as MBS move higher in price, mortgage rates move lower. Following the release of the employment situation report on Thursday, MBS did manage to gain some ground but eventually gave back early morning gains as market participants made for an early exit ahead of the three day weekend. Matt and AQ inform me that MBS are battling a very unclear economic picture which is prohibiting prices from moving higher. The week ahead is very light on economic reports with the highest impacting events to come from Treasury auctions throughout the week.

Today we get one piece of data, the Institute of Supply Management(ISM) non-manufacturing survey which measures the strength of the non-manufacturing sector of our economy. Readings above 50 indicate growth while readings below 50 indicate contraction. The last 3 surveys have each come in better than the prior one; however, last month’s report missed expectations to the low side coming in at 44.0 for May. Economists surveyed were expecting June’s report to come in at 46.7 but the release has indicated a better than expected reading at 47.0, continuing the trend of improvement within the non manufacturing sector of the economy. Following the release, there was little reaction from the markets.

Tuesday

- The first of three Treasury auctions for the week. At 1pm the Treasury Department will auction $35 billion 3 year notes. The added supply of debt on the market will apply pressure on treasury yields to move higher to attract bidders. For the auction to be viewed as a success, we look for high demand from indirect(foreign) bidders. The last auctions that took place 2 weeks ago, saw well above average demand from these accounts. It will be very difficult for MBS to move higher unless Treasuries can move lower in yield and with more and more supply coming this is becoming more difficult.

Wednesday

- At 700am, The Mortgage Bankers’ Association Application Index. This data set tracks the increase or decrease in purchase and refinance activity at major lenders. The recent spike in rates has had a greater impact on the refinance activity but last week’s report showed both refinance and purchase activity declining. The purchase activity posted a 4.5% decline while the refinance activity dropped 30 %.

- The second treasury auction for the week takes place at 1pm. The Treasury will auction $19billion 10 year notes. Since the average life of a mortgage is between 5-10 years, this auction is more relevant to MBS than the 3 year auction. Market participants will be looking at the indirect demand data to gauge the auction’s success. Strong demand would be positive for MBS and lower mortgage rates.

Thursday

- Weekly jobless claims which totals the number of Americans that filed for first time unemployment benefits for the prior week. Last week’s report showed that claims fell 16,000 to 614,000 and expectations call for this week’s report to indicate 610,000 first time claims. An increasing trend in unemployment claims points to a weak labor market which would lead to less consumer spending. If you do not have a job, you are much more likely to put off buying any unnecessary items. So, MBS tend to benefit with a higher than expected reading. As part of this report we also get continuing claims which totals the number of Americans that continue to file for benefits due to lack of finding employment. Last week’s report showed a decline of 53,000 to 6.702 million.

- The last treasury auction for the week will take place at 1pm. The Treasury will auction $11billion 30 year bonds. When our government does not have the cash to pay for spending, they issue treasury bills, notes and bonds to borrow the money. A treasury bill has a term of less than 2 years, a treasury note has a term of 2 to 10 years and a treasury bond has a term of greater than 10 years.

Friday

- International Trade which measures the difference between what we import into our country and what we export to other countries. Expectations call for the trade balance to be at $-28.8billion following last month’s $-29.2billion gap. The biggest impact to MBS from this report is the potential impact of importing inflation. A smaller trade gap would be a sign of a stronger dollar which makes import prices like the price of oil decline.

- Import and Export prices which gives a measure on inflation. The biggest enemy to mortgage rates is inflation as it eats away at the fixed return to the end investor. Your mortgage is a debt to you, but it is an investment to someone else. Last month’s report indicated that month over month, export prices increased by 0.6% while import prices increased by 1.3%. The main driving force behind the increase in import prices has been the run up in oil prices. Year over year, export prices posted a 6.5% decline while import prices fell a whopping 17.6%. Any report showing signs of inflation is negative for MBS and can result in higher mortgage rates.

- The Reuter’s/University of Michigan’s Consumer sentiment index which is a survey of 500 households on their personal financial conditions and attitudes about the economy. A more optimistic consumer is much more likely to spend while a pessimistic consumer is more likely to save. Since our economy is driven by consumer spending, the stock market generally rallies with a better than expected reading while MBS generally benefit with a lower reading. Over the last 4 month’s this report has shown sentiment to be increasing and economists’ surveyed are expecting that trend to continue with a reading of 71.5 following last month’s 70.8.

- At 10a eastern, Treasury Secretary Tim Geithner will testify before the joint hearing of House Financial Services and Agriculture Committee on derivatives regulation. Anytime Mr. Geithner speaks, market participants will pay attention as his words can move all markets.

Early reports from fellow mortgage professionals are indicating that the par 30 year fixed rate mortgage remains in the 5.00% to 5.25% range for the best qualified consumers. In order to qualify you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including 1 point loan origination/discount/broker fee.

It appears that MBS will continue to take their lead from treasuries, which are taking their guidance from stocks. Currently the benchmark 10 year note is moving slightly higher in yield which is a function of the added supply of Treasury debt to be auctioned off this week. Currently. For MBS to improve today, we need treasuries to improve and hold lower yields.

If you would like to track the price movement of MBS, check out Mortgage News Daily’s Mortgage Rates page where you will find MBS pricing, Treasury yields, mortgage rate changes, and mortgage market data.

Following a rather boring day on Monday, volatility picked up a little yesterday as the second quarter officially ended.  Mortgage backed securities followed treasuries to higher yields.  Most lenders did reprice for the worse increasing consumer borrowing costs by .25 in discount.   So far this morning, the downward pressure on MBS and treasuries continues as the benchmark 10 year note has moved to a yield of 3.59 after closing at 3.47 on Monday.  Though not always in direct relationship, this upward move in treasury yields is leading MBS in the same direction.  We're down .25 in discount so far this AM.  Remember, as PRICE falls, YIELD rises.  The "price" falling means that investors are requiring higher yields (interest rates).  This comparative increase in yield is passed on to you the consumer either in higher rates or higher discount points.

 We do have a busy day of economic reports which will set the stage for the most important monthly report, the Employment Situation, which we get tomorrow ( a day early as markets are closed Friday).   The first report to hit the wires is the weekly Mortgage Bankers' Association Applications index which tracks the weekly change in mortgage applications at banks.  The report has indicated a steep decline in mortgage activity.  First, the purchases index registered a 4.5% decline signaling no improvement in purchase activity and the refinance activity dropped a whopping 30%!  Many think lower mortgage rates are vital to our economic recovery in order to spur home purchases and increase consumer spending capacity through refinancing.  So this report is not the best news for the economy but it isn't a major market mover. 

 We received a couple reports this morning regarding jobs, but these reports take a back seat to tomorrow's Employment Situation.  First out is the Challenger Job-Cut Report which indicated that layoffs at corporations decreased from 111,182 to 74,393, the lowest level since the start of the recession.   The second report on jobs is the ADP Employment report which is similar to the official Employment Situation report we get tomorrow but consists of private payrolls (non government, military, etc...).  Historically, this report has varied greatly from the official report but it's accuracy is improving and investors are starting to give it a little more attention.    Expectations were for ADP to report job losses of 400,000 but the actual report indicated a loss of 473,000 jobs.   Here is a graph from Bloomberg that illustrates the difference between the two reports.