MBS are up +1/32 (FNMA 30-yr 3.0 at 102.29), around 1/32 lower than yesterday at this time. First unfavorable and later favorable repricing was seen yesterday.
The release of the first reading for third quarter Gross Domestic Product (GDP), the broadest measure of economic activity, caused some volatility for MBS this morning but had little net effect. GDP grew by 2.9% during the third quarter, above the consensus of 2.5%, and up from 1.4% during the second quarter. Strength was seen in exports and inventory levels. Consumer spending grew at a slower pace than in the second quarter. The Dow is up 50 points. Consumer Sentiment will be released at 10:00 et.
MBS are up +1/32 (FNMA 30-yr 3.0 at 103.13), around 5/32 higher than yesterday at this time.
The European Central Bank (ECB) meeting held no surprises and caused little reaction. The ECB made no change in rates or in its bond purchase program. ECB President Draghi suggested that the ECB will decide at its next meeting on December 8 whether to extend the bond purchase program which is currently set to conclude in March. In the U.S., weekly Jobless Claims rose to 260K, above the consensus of 250K. The Dow is up 10 points. Philly Fed and Existing Home Sales will be released at 10:00 et.
MBS are down -1/32 (FNMA 30-yr 3.0 at 103.08), around 5/32 higher than yesterday at this time. Favorable repricing took place yesterday.
This morning, September Housing Starts fell 9% from August to an annual rate of 1.05 million, well below the consensus of 1.18 million, and the lowest level since March 2015. However, single-family starts rose 8% from August. Housing Starts often are very volatile from month to month. Building Permits increased 6%, exceeding the consensus. The Dow is up 10 points. The Fed’s Beige Book will come out at 2:00 et.
MBS are up +4/32 (FNMA 30-yr 3.0 at 103.03), around 2/32 lower than Friday at this time. Unfavorable repricing took place Friday.
This morning, September Industrial Production rose 0.1% from August, slightly below the consensus for an increase of 0.2%. The Empire State regional manufacturing index fell to -6.8, below the consensus of 1.0. The Dow is down 25 points. No more economic data will be released today.
NOT SURE WHAT THE CHART ABOVE REPRESENTS?
MBS are down -8/32 (FNMA 30-yr 3.0 at 103.00), around 5/32 below morning levels, and near the low for the day. Unfavorable repricing has been seen. Comments from Fed Chair Yellen (see below) caused MBS to fall this afternoon. Consumer Sentiment declined to 87.9, well below the consensus of 92.0, and the lowest level since September 2015. The Dow is up 40 points. For the week, MBS prices fell about 10/32.
In a speech this afternoon, Fed Chair Yellen surprised investors with a potential new twist on U.S. monetary policy. Yellen put forth the possibility that a “high-pressure economy” may be the best approach to repair the damage done during the financial crisis. This would involve waiting longer in the business cycle than in the past to raise the federal funds rate. She acknowledged that this approach would run the risk of inflation rising above their 2% target level. Some of the hoped for goals of this twist for longer loose monetary policy would be to encourage business investment and to increase the number of workers who return to the labor force. The possibility of Fed policy which tolerates higher inflation caused long-term bond yields, including MBS, to rise.
Looking ahead, the next European Central Bank (ECB) meeting will take place on Thursday. Any guidance on future monetary policy could have an impact on global markets. In the U.S., Industrial Production will be released on Monday. The Consumer Price Index (CPI), a widely followed monthly inflation report, will come out on Tuesday. CPI looks at the price change for goods and services which are sold to consumers. Housing Starts will be released on Wednesday, and Existing Home Sales will come out on Thursday.
MBS are down -6/32 (FNMA 30-yr 3.0 at 103.11), close morning levels, but 5/32 below the high for the day. Some favorable repricing was seen. The recent trend toward higher yields continued today as investors expect less central bank stimulus around the world. No economic data was released today. Tomorrow, the JOLTS report and the minutes from the September 17 Fed meeting will be released. The results from both the 3-yr and the 10-yr Treasury auctions will come out around 1:00 et.