Thursday 3/12…Jobless Claims Come in Higher than Expected

Yesterday, mortgage backed securities managed to have a late day rally and closed 10 ticks higher or about .25 better in discount.  Some lenders repriced for the better yesterday while others held back and didn’t pass along the improvements.  So far this morning we are basically even with close yesterday and we should see par 30 year fixed rate mortgages anywhere from 4.75% to 5%.   

We did receive some economic data this morning and it appears to be a push.  First, we got the release of the weekly jobless claims.  Economists where expecting 645,000 people to have filed claims for unemployment last week; however, the number came in slightly worse at 654,000.  The continuing claims number came in higher at 5.317 million Americans that continue to file for unemployment which is a record high number and above the consensus.  So, the jobs outlook is still looking quite bad which is a positive for mbs since higher unemployment allows companies to hire new people without attracting them with higher pay and they do not need to pass along raises to current employees as they will be happy to just have a job.  This is known as wage based inflation and this is one of the biggest enemies to mortgage rates as higher inflation leads to higher interest rates.  So, wage based inflation is quite contained.   Next, we got the release of the monthly retail sales figures and to most economists surprise they came in considerably better which is a negative for mbs.   Economists where expecting retail sales to show a month over month decline of -.5%; however, the number came in quite better at -.1% and when excluding autos the reading came in at a .7% increase when economists where expecting a -.2% decline.    There was also a positive revision to January’s number for an increase of 1.8% versus the 1% reading.   Since jobless claims where slightly worse and retails sales better, we have a push.  We still get the release of business inventories in about an hour but historically not a market mover.   Lastly, there is another treasury auction later today of the 30 yr Treasury bond.  The added supply could put pressure on Treasuries and mbs to move lower in price which results in higher mortgage rates.  The auction yesterday of 10 year treasury notes was received rather well and caused a rally in treasuries which helped to spark the rally we had in mbs yesterday.  The 10 year treasury note reached a high yield yesterday of over 3.00 but moved considerably lower after the auction to a yield of 2.90. 

Later today there is a hearing on Capital Hill regarding accounting rules, specifically the mark to market and the uptick rule on shorting stocks.  I do not want to get into detail on these items in this blog as those are much more relevant to equity traders, but this could have an effect on mbs later today.  If there are changes to these rules, it could spark a stock market rally which could pull money out of the fixed income market, mbs and treasuries, and into the stock market.  If you do not have access to live mbs pricing, keep an eye on the stock market.  If you see the dow moving higher, that might be a sign to lock any short term loans as we will probably see the best rates of the week today.  So far this morning, the stock market is opened lower but has since turned positive and treasuries are currently moving lower in yield with the 10 year at 2.86.  I will get back to you later today with any relevant updates but so far so good.  Early reports from fellow mortgage professionals are showing mortgage rates to be about .25 better in discount that what we had yesterday at this time.