Wednesday 11/12 … Morning Update

The mortgage backed security market opened this morning in positive territory. We get no economic reports today but we will have another treasury auction of 10yr notes at 1pm est. The added supply of debt on the market could hinder any significant upside to mbs but hopefully this auction goes off as well as the one on Monday which saw a lot of foreign demand.

Sec. Paulson will be giving a speech today at 10:30 est. on the progress of the $700 billion dollar rescue plan otherwise known as TARP. We will be paying special attention to his speech as it could move the markets. Until we get some positive news on TARP, it will be hard for mbs to gain momentum and take us to the land of lower rates. We have resistance above us that will take some TARP news to break through. Let's hope Sec. Paulson gives fixed income investors what they want to hear.

Quite often on these posts we speak about floors of support and resistance levels. An easy way to illustrate what we mean when we say that is to look at the room you are currently in. You have a floor beneath your feet and you have a ceiling above your head. You can move fairly easy between the floor and ceiling by jumping up and down, this is known as a trading range. Now, lets say you want to go through the ceiling or below the floor, that requires much more effort. That is what we mean when we say it will take TARP news to break through the resistance overhead.

Tomorrow we start to get some economic data in the form of Trade Balance and Jobless Claims and Friday we get the big reports of the week, Retail Sales.

Due to the floor of support beneath us and the likelihood of disappointing retail sales figures on Friday, it appears that floating is a safe and good call. Disappointing retail sales should be a positive for mortgage backed securities and help push them toward higher prices thus lower mortgage rates.