The Mortgage Update

Treasuries gained for a second day as some investors got a hold of themselves and realized that headlines proclaiming the Fed will slow its bond buying program sooner than later are speculative. Its weekend, which means the most significant economic data is behind us and the auction cycle has ended for the week. Hopefully, the majority of investors will be focused on the FOMC minutes next week and offer us a quiet day in the MBS market. Data today will be centered on the 9:55 Consumer Sentiment announcement.

The market rallied yesterday as news from Asia caused investors to seek safer assets. The bond market made up for losses incurred early this week, moving back to Thursday’s levels. Today, no major economic news is scheduled to be released; however, an announcement from the ECB might move the market today. Tomorrow jobless claims are schedule to be released and the speculation continues about the FOMC announcement next week.

All was quiet in the Bond Market yesterday with pricing finally stabilizing in the early morning. Treasuries fell for a third day ahead of the three-year auction today. Speculation the Federal Reserve will consider reducing bond purchases still drives market volatility this week. Today reports are forecasted to show retail sales rose .4 percent in April, which would be the biggest increase since February. How, or if this will significantly, move the MBS market is anyone’s guess.

Something strange happened yesterday, the bond market rallied. However, gains made yesterday do not change the fact that the MBS market has moved into new territory. Today has the potential to be the most volatile day this week. This morning, a government report that economist forecast to show U.S. job growth slowed last month will be the market mover. U.S. employers added 163,000 jobs in May down from 165,000 in April. If employment numbers continue to be strong, the Fed may have more confidence in ending its bond purchases sooner than later.

Treasuries advanced early this morning as stocks declined around the globe; increasing demand for safer assets. A fairly big day for economic data, separate figures are forecasted to show that factory orders rose in April and service industries expanded in May. The Fed will release the Beige Book today as well, which reports on the economy. This report rarely makes a market impact; however with recent market volatility every piece of news has the potential to significantly move the market.

Mortgage rates were moderately higher today, taking most lenders into slightly higher territory than yesterday or last Tuesday (the two worst days recently).  Last Tuesday was the game-changer for rates, and every day since then has been in 14-month high territory--today being the worst. 

At this point, rates for the next few days will be heavily dependent on tomorrow morning's economic data, where the ADP Employment report has a tendency to cause volatile movement if it's far outside the range of expectations, even though Friday remains the most important day of the week (and one of the most important this year).  If both tomorrow and Friday are favorable for rates, we will likely recover a lot of lost ground, but if job creation is clearly stronger than expected, today's 14-month highs may look attractive by comparison.

WEEK OF JUNE 3 2013

This Week's Economic Releases

Mon

• PMI Manufacturing
• ISM Mfg Index
• Construction Spending

Tues

• International Trade

Wed

• ADP Employment Report
• Productivity and Costs
• Factory Orders
• ISM Non-Mfg Index
• Beige Book

Thur

• Jobless Claims

Fri

• Employment Situation