MBS MORNING: On to the Data

The Producer Price Index came in this AM down 2.2%.  The core rose .1%.   Expectations were for a 2.0% headline and .1% rise in core.  Fairly boring data as far as MBS are concerned.

Retail sales fell 1.8%, versus expectations for a 1.9% decrease.  Overall, not a significant variance, but this is the first time in 16 years that the reading has fallen for five straight months.

Neither of the above reports have much of an impact on MBS.  We get consumer sentiment and Business Inventories in about an hour.  The tenor of the day, however, will likely remain dictated by tradeflow considerations.  We're up against two big hurdles at the moment: the "too much of a good thing" concept discussed in the earlier post, and the fact that MBS have been due for a bit of a correction in terms of spread.  That means if treasuries can't sustain their RIDICULOUSLY (!) low yields, we could end up right back where we started this AM.  This is important so let's reiterate: MBS HAVE IMPROVED FROM THEIR LOWS THIS AM, BUT IN NO WAY IS THAT DUE TO ANY OF THEIR OWN MERITS!  Since spreads remain very wide, investors buying decisions have set the tone for MBS spread today.  Granted it will shift a bit during the day, but treasuries have MBS on a leash.  They have decided to go down a road of lower yields and despite struggling a bit, MBS eventually have to follow (though they have stretched the leash out quite a bit).

Currently 5.0's are down 3 ticks on the day at 101-20.  If you don't have rates yet, you're welcome to float until things get ugly, but today more than other recent days, you'll probably avoid more volatility and reprice risk with a lock today.  Of course, we'll let you know the moment MBS changes enough to force action, BUT REMEMBER (!) there are a lot of "flow" issues for many lenders right now, so not every lender's rate sheet is connected to MBS prices.  Proceed with caution.