Monday Morning ................................ 2/4/08

This is a rare day concerning Mortgage Backed Securities.

We have stocks down on the day currently, in conjunction with a slightly weaker than expected factory order report which came in at 2.3% down from estimates of 2.3-2.5, depending on who you asked.

Normally, this news would be good for mortgage backed securities.  But today, Mortgage bond prices are actually falling, which means yields/rates are moving higher.

The "why" behind this could be a number of factors, such as "profit-taking."  In other words, bond investors who got into the market any time in the recent past are speculating that the the bond prices are resistant to moving any higher.  Of course, then it makes sense for them to sell, which lowers prices due to competition, thus raising mortgage rates.

The other factor is "originator selling."  Basically, originators can be thought of as the banks that are writing the checks to fund your home loans.  They have seen a lot of "locking" last month as rates have dropped.  In order to maintain liquidity, they need to sell mortgage securities.  Again, this increases competition among sellers, which lowers bond prices, thus raising bond yields otherwise known as the interest rates on your mortgages.

This weak is light in data compared to last week.

Currently both the 5.0 and the 5.5 coupon are down between 6-8/32nds on the day.  This would indicate slightly worse rates today.  I'll keep you posted if the market starts to move significantly.