MBS are down -4/32 (FNMA 30-yr 3.5 at 101.11), around 1/32 lower than yesterday at this time. Favorable repricing took place yesterday.
This morning, the Bank of Japan (BOJ) made no policy changes, and there was little reaction in global markets. The BOJ revised upward its economic outlook, partly due to stronger exports. The Dow is up 100 points. No economic data will be released today.
MBS are up +13/32 (FNMA 30-yr 3.5 at 101.17), around 5/32 above morning levels, and near the high for the day. Favorable repricing was seen. MBS began the day in positive territory and then moved higher after it was reported that the Russian ambassador to Turkey had been shot. Investors reacted by purchasing safer assets such as MBS. MBS prices then fell back to morning levels when Fed Chair Yellen said that the labor market is the strongest that it has been in almost a decade. Reports of another violent incident, a truck driven into a Christmas market in Germany, caused MBS to climb to new highs this afternoon. The Dow is up 40 points. Early tomorrow, there will be a meeting of the Bank of Japan which could influence U.S. MBS prices. No economic data will be released.
Special Update: Fed Meeting
As widely expected, the Fed raised the federal funds rate by 25 basis points. Unfortunately for MBS, Fed officials also raised their projections for the pace of rate hikes in 2017 due to “realized and expected labor-market conditions and a return to 2% inflation.” The faster that the Fed raises rates, the sooner it is expected that the Fed will reduce its holdings of MBS. Reduced demand for MBS is negative. In addition, the statement noted that market-based measures of wage inflation had increased “considerably”, which also is bad for MBS.
MBS are up +4/32 (FNMA 30-yr 3.5 at 102.10), around 1/32 higher than yesterday at this time. Unfavorable repricing took place yesterday.
MBS are a little higher this morning following the release of mixed economic data. November Retail Sales rose 0.1% from October, well below the consensus for an increase of 0.4%. Excluding the volatile transportation component, Retail Sales ex-Auto also rose just 0.1%, well below the consensus of 0.4%. The October results were revised lower for both readings as well. November Industrial Production fell 0.4% from October, below the consensus for a decrease of just 0.2%. The November PPI inflation data was stronger than expected, as Core PPI was 1.6% higher than a year ago, up from 1.2% last month. The Dow is down 25 points. No more economic data will be released today. The announcement from the Fed meeting will come out at 2:00 et, and Fed Chair Yellen’s press conference will begin at 2:30 et. It is widely expected that the Fed will raise the federal funds rate, so investors mainly will be looking for guidance about the pace of future tightening.
MBS are down -6/32 (FNMA 30-yr 3.5 at 101.31), around 16/32 lower than Friday at this time. Unfavorable repricing took place Friday.
An increase in oil prices has hurt MBS this morning. An OPEC deal caused oil prices to reach the highest levels since July 2015. The Dow is up 50 points. No economic data will be released today. The results from the 3-yr Treasury auction will come out around 11:30 et and the 10-yr Treasury auction around 1:00 et.
The monthly rollover took place overnight for FNMA and FHLMC 30-yr securities. The current coupon switched from the December to the January contract. If you are tracking daily MBS price movements, January MBS prices reflected a drop of about -6/32 from December. This change is priced in over the course of the month, so the impact on mortgage rates on the day of the rollover is generally no greater than on any other day of the month.
MBS are down -7/32 (FNMA 30-yr 3.5 at 102.21), around 1/32 higher than yesterday at this time. Favorable repricing took place yesterday. Early investors may have priced at a wide range of levels.
It has been a volatile morning following the European Central Bank (ECB) meeting. As expected, the ECB extended its bond purchase program. Originally set to expire in March, the program now will continue through December. The big surprise was that the monthly purchases will decrease from $80 billion euros to $60 billion euros beginning in April. ECB President Draghi said that the ECB could extend the program again or increase the level of monthly purchases if economic conditions justify it. The reduction in the level of stimulus removed some expected future demand for bonds, causing bond yields around the world to move higher this morning. In the U.S., weekly Jobless Claims fell to 258K, which was close to the consensus. The Dow is up 25 points. No more economic data will be released today.
MBS are up +9/32 (FNMA 30-yr 3.5 at 102.28), around 8/32 above morning levels, and near the high for the day. Favorable repricing took place. Both stocks and bonds rallied today on little news. The most likely explanation is that investors expect favorable news about additional stimulus from the European Central Bank (ECB) tomorrow. In recent years, central bank stimulus has boosted both stocks and bonds. The JOLTS report showed that job openings in October fell to 5.53M from an upwardly revised reading of 5.63M in September. The Dow is up nearly 300 points to a record high. Tomorrow, the ECB meeting announcement will come out at 7:45 et, and it will be followed by a press conference with the head of the ECB. In the U.S., Jobless Claims will be released at 8:30 et.