Garrick Werdmuller

Mortgage backed securities (MBS) prices are higher (rates lower) as stock markets are falling and the Fed prepares to buy U.S. debt twice this week; FNMA 4.0% coupon 100.06bps, +22bps. The DOW, NASDAQ & S&P 500 are all down over 2% pulling money out of equities and into fixed income assets like MBS. The Fed will purchase longer term notes on Tuesday and shorter dated securities on Thursday as it battles the longest recession since the 1930's. Leading Economic Indicators fell 0.3% in March offering no signals of improvement for the economy. Components showing declines are building permits, vendor performence, factory workweek and jobless claims. Showing improvement in March were the interest rate spread and money supply, reflecting active government intervention to stimulate the economy. The report confirms the recession has been long with no end in sight though whether its deepening in intensity is still uncertain.

Mortgage backed securities )MBS) prices are lower (rates higher) in quiet trading as the market takes a breather after a wide range of economic data released this week; FNMA 4.0% 100.05bps, down 12bps. The two major influences lately on MBS prices has been inflation & Fed purchases; inflation is expected to stay low in the near term and the Fed is likely to continue its steady MBS purchases. The stock market is mixed this morning providing little direction. Libor rates continue to fall, 3mo libor stands at 1.11% as improved earnings at banks signal a thaw in the global credit freeze and the declines are reflecting a reduction in systemic risk. Consumer Sentiment rose solidly to 61.9 from 57.3 in April, showing signs of life in the consumers attitude and offering a hint that the deepest part of the recession is over. Wouldn't that be nice. TGIF!

Mortgage backed securities (MBS) prices fell (rates higher) as investors seek higher yields amid concerns borrowing by the Treasury will overwhelm demand and signs the economy is stabilizing; FNMA 4.0% coupon 100.33bps, -6bps. Todays economic data was mixed; Housing Starts reversed course in March, posting a sharp decline of 10.8% and significantly below the consensus forecast. However, the multi-family component plunged 29% while single-family starts were unchanged. Permits also resumed a downtrend, declining 9% in March to a record low. The report shows that this sector remains under pressure from excess supply of unsold homes. A flood of bank-owned properties is hitting the market as the recession deepens. Foreclosure filings rose 24% to a record in the 1st quarter as temporary programs to delay action on defaults comes to an end. Falling home prices and rising unemployment will contribute to further increases in defaults as more homeowners find themselves owing more than their houses are worth. U.S. jobless claims fell 53K to 610k, but the latest data is from the Easter/Passover holiday shortened week. Continuing claims however increased 172k to another record at 6.02 million people collecting benefits. The Philadelphia Fed Index improved to minus 24.4, deeply negative but again indicate that the pace of contraction is slowing. The current improvement in orders points to improvement in output ahead. Overall the bad news is not as bad & the good news is not as good. Go figure.

Mortgage backed securities (MBS) prices are higher (rates lower) after a government report showed U.S. consumer prices fell for the 1st time on an annual basis since 1955 indicating the recession is keeping inflation in check; FNMA 4.0% coupon 100.38bps, +7bps and the high of the session. The consumer price index (CPI) decreased 0.1% in March and prices fell 0.4% in the last 12 months leaving the Fed roam to continue its quantitative easing. with inflation a distant concern, the Fed will pump money into financial markets to unlock credit and revive growth. Others caution that in the longer term the unprecedented fiscal stimulus, policy of buying debt and pumping money into the financial system will reignite inflation. Industrial Production dropped 1.5% last month, more than anticipated, as factories slashed workforces, closed factories, cut production and trimmed unwanted stockpiles. Capacity Utilization fell to 69.3%, lowest level since 1967. The Empire State index rose to a minus 14.7 from minus 38.2, higher than expected, and the outlook for the next six months improved. Easter/Passover likely held down mortgage applications according to the Mortgage Bankers Association weekly survey, both purchases and refinances were down 11%. The Fed's Beige Book will be released at 11am pt.

Mortgage backed securities (MBS) prices rose (rates fall) after release of economic reports showed retail sales unexpectedly fell in March and wholesale prices dropped; also the Fed prepares to buy more government debt today. FNMA 4.0% coupon 100.16bps, +7bps and the high of the session. March retail sales were surprisingly negative, down 1.1% and sharply below the market forecast. Sales were weak across the board; the fact that declines were widespread by components shows the consumer back into retreat mode, calling into question the "green shoots" theory that recovery is underway. Less consumer spending heading into the 2nd quarter means the recession is likely to persist. Producer Price Index (PPI) fell 1.2%, well below the consensus, pulled down by an unexpected fall in energy costs, indicating the recession is keeping inflation under control. Credit is starting to move again as bankers gain confidence that the worst of the financial crisis is over, bouyed by the Fed's programs to relieve disruptions in markets and restore the flow of credit. Libor (3month) rates fell to 1.12% today from 1.32% a month ago. Consumer credit costs are high by historical standards compared with what banks pay to borrow, an obstacle that must be removed to fix the economy. FYI, global losses and writedowns have swelled to $1.29 trillion!