Monday 2/9…The Week Ahead

This week brings us very little in the form of economic data. 

Wednesday

-          Trade Balance, economists expecting a -$37.0b after last months -$40.4b.  This report measures the difference between imports and exports of goods and servieces.  A negative number show that we import more goods and services then we export.

Thursday

-          Retail Sales, econoimists expecting a month over month decline of -0.3% after last months -2.7% drop.  Strength in retail sales is seen as a positive for the economy thus a negative for mortgage backed securities as higher sales leads to higher prices(inflation).

-          Retail Sales excluding autos, economists expecting a -0.4% after last months -3.1% drop.  This measures retail sales without auto sales since auto sales can move dramatically from month to month.

-          Jobless claims, economists expecting 625,000 after last weeks 624,000.

Friday

-          Consumer Sentiment, economists expecting a 61.5 reading after last months 61.2.  This report gives investors an insight into future consumer spending.   The higher the number, the better consumers feel about our economy and thus are more likely to spend money.  More consumer spending, leads to higher prices which leads to inflation, which is a negative for mbs.

We also get this week the start of a massive treasury auction.  With the added supply of treasuries on the market, there will be downward pressure on treasury prices which will cause pressure on mortgage backed securities to also follow lower.  This pattern has been very predictable over the last few weeks.  If you do not have access to live mbs prices, you can watch treasuries for an idea of how mbs are moving.  Mortgage rates follow mortgage backed securities; however, mbs and treasuries are both fixed income investments and do trend in the same direction.    Currently, the 10yr treasury yield is at 3.00.  If that moves lower, we should get better mbs pricing and lower mortgage rates.

Currently mbs are basically even with where they closed on Friday.  We should see slightly better rate sheets this morning with lenders pricing about .125 to .25 better in discount when compared to Friday’s rates.