Rates Being Pressured Higher

Yesterday mortgage backed securities again traded in a very tight range and ended up losing some ground by 5pm. Selling pressure has carried over into today and MBS prices are moving lower in price(as price moves lower, rates move higher) which will force lenders to raise borrowing costs.  In total between yesterday and this morning, consumer borrowing costs have increased by about a .125 to a .25 in discount.   We should continue to see par 30 year conventional mortgages in a range from 4.5% to 4.75% for the most qualified borrowers. 

We are getting some economic data this morning, but I suspect that this data will be overlooked by investors due to the Employment Situation report due out tomorrow morning.  This report is the most important piece of economic data released on a monthly basis.

Onto the economic data:

First out this morning were jobless claims. The outlook for jobs continues to weaken after the number of U.S. workers filing new claims for jobless benefits unexpectedly rose to its highest level in over 26 years last week and continued claims jumped to another record high. Last week 669,000 Americans filed for unemployment insurance which is 14,000 more than economist expectations for 655,000 new unemployment insurance claims. 5.728 million Americans claimed ongoing  unemployment insurance benefits.  Not much reaction from MBS after the data release.

Factory Orders were also released this morning.   If factories are increasing orders, that is a sign of future economic growth which is positive for equities and somewhat negative for fixed income(MBS and Treasuries).   The Commerce Department factory orders report revealed an overall increase of 1.8% in February versus the revised 3.5% decrease in January (prev. -1.9%).  This is above market expectations for an increase of 1.5% and very welcomed. Not much reaction as mark to market headlines news is trumping economic data this morning.

In some related news, the European Central Bank which is the equivalent of our Federal Reserve cut their benchmark interest rate to 1.25%.  Currently our benchmark Federal Fund Rate sits in a range between 0 to .25%.  Central banks around the world cut their benchmark rate to spur economic activity.  The idea is if rates are lower, consumers and businesses are more likely to borrow money to buy goods and services which spurs economic growth.  When the economy grows to fast, you start to get inflation and to fight inflation; the central banks increase their benchmark rates to slow the pace of economic growth.  As the cost of money increases, businesses and consumers are less likely to borrow money to buy goods and services which slows down the economy keeping inflation in check.  Also, it was announced today that the Financial Accounting Standards Board is easing fair value rules also known as mark to market.  Many economists blame mark to market as the cause of many of our economic woes especially in the financial sector.  These are more advanced topics which have been discussed on the MBS Commentary. 

Lender rate sheets are indicating that mortgage rates are slightly higher today. Lenders have increased consumer borrowing costs by about .25 in discount.  The stock market has reacted favorably to FASB's decision to relax mark-to-market accounting policies.  While equities are in rally mode, it will be hard for MBS to make up any ground as investors buy stocks instead of fixed income securities, however it should be noted that the Federal Reserve will be making open market purchases of Treasury Notes today which will be a supportive event for mortgage rates.  Not to beat a dead horse, but with the Employment Situation Report due out in the morning, I suspect we will again trade in a tight range ahead of this report.