Garrick Werdmuller

Mortgage backed securities (MBS) prices are lower (rates higher) as the G-20 summit convened amid signs the U.S. may start to recover from recession and the global slowdown may be easing; FNMA 4.0% coupon 100.41bps, -17bps and the low of the session. Stocks surged on rising optimism about the economy, cutting demand for the relative safety of fixed income assets. Investors may require higher hields to keep buying Treasuries as the administration borrows record amounts to try to snap the economic slump. European Central bank (ECB) lowered rates by 25bps, less than was expected. Jobless Claims unexpectedly rose 12K to 669K, highest level since 1982, as companies kept cutting jobs to trim costs reinforcing concerns that the economy will continue to bleed jobs as companies reduce output. Total number of people on benefit rolls soared to 5.73 million. Factory Orders rose for the first time in 7 months reflecting a rebound in demand signaling the worst of the manufacturing slump may have passed.

Mortgage backed securities (MBS) prices have fallen sharply (rates higher) as the Fed prepares for its 4th outright purchase of Treasuries as part of its effort to lower borrowing costs and stronger than expected economic reports are released; FNMA 4.0% coupon 100.59bps, -13bps and the low of the day. The effort to lower mortgage rates hasn't yet ignited home buying but it has definitely caused a surge in refinancing (+3.7% % 79% of all applications), meaning fewer foreclosures and less homes weighing on supply. Challenger Job-Cut Report announced layoffs fell back for a second straight month to 150k in March vs 185k in February and down from January's peak of 242k. ADP Employer Services gauge drop of minus 742k workers was larger than expected, pointing to no relief in sight for labor market. ISM Mfg Index edged higher in February to a level only modestly above December's record low, indicating little improvement in the near term. Construction Spending fell again, but not as much as expected in February, with weakness in private residential outlays. Pending Home Sales rose 2.1% from a record low as buyers took advantage of deeply discounted prices and low interest rates pointing to momentum for the housing sector going into the key months of April and May.

Mortgage backed securities (MBS) prices are near unchanged (rates flat) as the prospect of increasing debt sales damp demand for fixed income assets; FNMA 4.5% coupon 102.17bps, +3bps & 4.0% coupon 100.75bps, +3bps. We will be switching the current coupon from 4.5% to 4.0% to better reflect current market conditions. To stem the longest recession since 1930, the U.S. government has spent, lent or guaranteed $12.8 TRILLION, an amount the approaches the value of everything produced in the country or $42,105 for every man, woman and child in the U.S. Case/Shiller Home Price Index tumbled 19% in January from a year earlier, the fastest drop on record as demand plummeted and foreclosures rose. A glut of unsold properties may keep prices low, shrinking household wealth and damping spending. Lower prices and borrowing costs however are attracting some buyers, evidenced by the National Association of Realtors affordability index at record levels. Chicago PMI fell to 31.4, below the consensus forecast, as did Consumer Confidence, which came in at 26. Most economic data in March exceeded expectations, so these reports bucked the trend and quells talk of the economy bottoming out anytime in the near future.

The week ahead shapes up as an exciting one for mortgage backed securities (MBS) culminating with the important March Employment report released on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Monday starts off pretty tame, no economic reports due but short term T-bill auctions and a couple of Fed speakers will garner attention. Case-Shiller Home Price Index, Chicago Purchasing Manager Index (PMI) and Consumer Confidence will provide a broad view of the economy on Tuesday. Wednesday brings a slew of information including Mortgage Bankers Association weekly application data, Challenger & ADP Employment figures, ISM Manufacturing Index, Construction Spending and Pending Home Sales, a leading indicator for the housing market. Thursday's most pertinent data are Jobless Claims and Factory Orders. Besides the all important Employment Report on Friday, we also get ISM Services Index plus Fed Chief Bernanke speaking which usually causes a stir. Combine all that with legislative drama, Administation initiatives and global equity concerns PLUS the penultimate trading week before April Conforming MBS "rollover" and this will be an exciting week in the mortgage world!

Mortgage backed securities (MBS) prices gain (rates fall) as stocks globally are lower (DOW down 100) and the Fed prepares to buy notes for a second time this week to hold down borrowing costs; FNMA 4.5% coupon 102.06bps, up 17bps and the high of the session. Personal Income slipped 0.2% in February while Consumer Spending slowed to a 0.2% rise. Firming oil prices did damage to overall inflation, the price gauge tied to spending patterns rose 1.0%. Today's report offers a picture of an economy that remains in recession, while the pace of contraction has eased the consumer is losing ground. Consumer Sentiment edged 0.3% higher to a still severely low level of 56.6 in March. Expectations did rise 2.5% to 53 indicating the pessimism isn't getting worse but the current conditions component fell 3% to 62.3 a reflection of ongoing contraction in the labor market. Rates should improve today as most lenders resisted passing through yesterday's late afternoon gains. As always on a Friday, be watchful of an afternoon sell-off; consider locking off morning pricing. TGIF!