MBS prices are down a bit again today (FNMA 4.50 -7/32) after being down yesterday (FNMA 4.50 -10/32).  Mid-day price worsening was seen yesterday.  As of this moment the market is trading sideways, close to prices seen at the open.  Producer Inflation numbers came in above expectations, signaling some upward price pressure.  Retail sales also came in better than expected, but close to expectations.  Both of these prints may be looked upon as signs of increased demand for goods and inflation will always be seen as a precursor to higher interest rates.  This can create downward pressure in mortgage bond pricing as investors perceive market conditions as improving.

 

Tomorrow, Wed, 7/15 brings Consumer Inflation Data (est. Core CPI 0.1%, CPI 0.6%) and minutes from the FOMC meeting that took place on 6/24.  Look for further guidance on inflation from the CPI numbers.  Again, heightened inflation expectations will almost certainly lead to downward pressure on MBS prices (upward pressure on rates).  Look for the FOMC minutes to be dissected by market gurus as usual.  Market "experts" will be looking for indications of FED leanings regarding policy, stance, and open market operations.  Listen for specific language regarding the FED's MBS and Treasury purchase programs and their overall outlook on the housing market and the economy.   If the FED sees improving conditions on either front, we may see some mortgage price deterioration.  If they indicate a worsening or stagnant outlook, we may see MBS price improvement as market participants will anticipate an acceleration in FED bond purchases. 

 

 

Today's Intraday MBS Price Chart:

 

 

 

2 Month, FNMA Required Net Yield Chart:  As you can see in the chart below, while rates are not as low as they were in early/mid-May, we ARE seeing lows not seen since late May. 

Weekly Roundup

JULY 02, 2009

MarketWatch's top stories of the week

By MarketWatch

Well, after getting our hopes up over the last few months, the economy turned on us this week and sent a depressing but fairly clear message that we are still deep in the recessionary tunnel. In fact, it feels like the light at the end of this tunnel is still so far away we can't yet tell if it's an oncoming train or the sweet sunshine of recovery.

After briefly turning positive for the year in recent weeks, the Dow Jones Industrial Average (.DJI) and the Standard & Poor's 500 Index (.SPX) are now back in the red as investors reassess the state of the economy. The indexes have now recorded three weekly losses in a row.

Friday's unemployment report appeared to catch investors off guard, even though other data during the month should have sent a clear signal the economy is still in a recession. Nevertheless, many in the markets had started to talk openly of a recovery when in fact economic reports showed little more than a slowing in the rate of the decline.

Maybe those rising bond yields really were triggered by worries that inflation will get out of control because of government stimulus after all, and not a sign that the yield curve is normalizing as the economy rebounds.

The Dow fell 223.32 points or 2.6% on Friday to close at 8,280.74, a drop of 1.9% for the week. The S&P 500 fell 26.91 points or 2.9% to close at 896.42, for a weekly loss of 2.5%. The Nasdaq Composite (.COMP) dropped 49.2 0 points or 2.7% on the day to close at 1,796.52. For the week, the index was 2.3% lower.

Stay tuned to MarketWatch.com throughout the long weekend. We'll have coverage of all the news you need plus a package of stories that reviews quarterly mutual fund performance and looks ahead at what the third quarter might bring. We'll also have a look at how to invest in the clean technology sector.

-- Christopher Noble , assistant managing editor

Time to worry

A nasty strain of complacency has settled over Wall Street in the past several weeks, as the stock market has begun its traditional summer lull. At some point, the major stock indexes will break from their range -- possibly as soon as next week, when earnings season kicks off. It's now up to companies -- particularly in the finance, retail and tech arenas -- to either beat the forecasts or wilt in front of them. Read David Callaway's column on why it's time to be concerned .

Disappointing jobs report

The U.S. economy shed jobs at a faster pace in June than in May, suggesting that the turnaround in the economy may take longer than expected. Nonfarm payrolls shrank by 467,000 in June, higher than the 325,000 decline expected by economists surveyed by MarketWatch and the 322,000 jobs lost in May. Read more details about the latest employment data .

Euro-zone's employment woes

The jobless rate across the 16 nations that share the European single currency rose more than expected to 9.5% in May, climbing to a 10-year high as the recession continues to take a toll on the euro zone. Spain's labor market continued to bear the worst of the downturn, with the unemployment rate rising to 18.7%. Read the full report .

Bonds: More room to run

Many investors see the potential for more gains in corporate bonds through the end of the year, if the economic recovery turns out to be tepid and with U.S. company debt still paying much higher yields than Treasurys. In the first half of the year, the major fixed-income asset classes reversed the dramatic moves of 2008's financial crisis, giving high-yield bonds the best performance by far and leaving Treasurys the biggest loser. Read more about the outlook for bonds .

Mexico: Depending on ratings, U.S. revival

Gains for Mexico's stock market and its currency in the second half of the year hinge on reforms by the Mexican government to stave off ratings downgrades and on firm signs of a U.S. economic rebound, analysts said. Latin America's second-largest economy has sustained a series of heavy blows this year: falling exports as its largest trading partner, the U.S., fights through recession; an outbreak of a deadly influenza strain; and escalating violence related to drug trafficking. Read more about Mexico's forecast .

A century-and-a-half sentence

A federal judge in Manhattan sentenced admitted multibillion-dollar swindler Bernard Madoff to 150 years in prison, citing the enormity and callousness of his Ponzi scheme's crimes. Lawyers for Madoff had sought a sentence of 12 years for the 71-year-old money manager, who in March pleaded guilty to 11 felony charges -- including securities fraud, money laundering and theft from an employee-benefits plan. His clients have reportedly lost more than $13 billion. Read more about Madoff .

Hailing the Green Dam delay

Computer-industry trade groups and representatives reacted positively to China's decision to indefinitely delay a controversial rule requiring the world's leading PC makers to include Web-filtering software in any computers sold in the country. One spokesman for a tech-industry trade group said the move should make it easier for tech companies to do business with China. Read more about Green Dam .

Hyundai has another winner

If this car-selling gig doesn't work out, executives at Hyundai might want to consider careers in psychology. The Korean automaker has played masterfully on the fears of its customers during some of the darkest days the industry has ever seen, and its efforts have paid off big. In its latest effort to drive sales, Hyundai offered new-car buyers a chance to lock in $1.49 per gallon gas for an entire year. It's not a new concept and the savings may not be all that substantial, but the timing is right. Read more about Hyundai's new incentive .

Another Airbus down

A Yemen Airways jet carrying 153 people crashed in the Indian Ocean near the Comoros Islands early Tuesday, marking the second major crash involving an Airbus plane in less than a month. The A310 jet, nearly 20 years old, was on the final leg of a journey from Paris and Marseille to Comoros via Yemen. It was operated by Yemen Airways since 1999, according to Airbus. Read more about the accident .

Holiday travel outlook

U.S. airlines, along with hotels and resorts, have slashed prices this July 4 holiday to reel in and net today's more budget-conscious traveler. It's helped, leading to a 5% increase in leisure-travel bookings for airlines over the three-day weekend, as recorded by AAA. But the trade-off is sharply lower revenue. Read more about Independence Day travel