Mortgage backed securities have opened to the downside following last weeks trend.  After last week reaching a high of 101-10, the 5.0 coupon is currently trading at 100-19 which is about .75 in discount to the worse.  This means the same rate last week, will now cost .75.  After the big rally we have been on it is not uncommon to see a sell off especially at years end when investors are trying to prepare their balance sheets.  

The upcoming week is light on data with the most significant reports coming on Friday. 

Tuesday

  -          Pending home sales index, economists expecting -2.3% after last months -4.6%

 Thursday

-          Trade Balance, economists expecting a -54.0b after last months -56.5b

-          Jobless claims, economists expecting 515,000 aflter last weeks 509,000

Friday

-          Core Producer Price Index, which is a measure of inflation on the producer level.  This report is not as important as consumer inflation due to producers reluctance to pass higher costs to the consumer.  The core reading strips out food and energy.  Economists expecting a .2% reading after last months .4% increase.

-          Producer Price Index, economists expecting a drop of -1.8% after last months -2.8% drop.  Much of the drop can be credited to the drop in oil prices.

-          Retail Sales, economists expecting a drop of -1.8% after last months -2.8% drop.

-          Retail Sales excluding Autos, economists expecting a -1.7% drop after last months -2.2% drop.

-          Consumer Sentiment, economists expecting a 58.0 reading after last months 55.3 reading. 

During the time it has taken me to write this update, mbs have started a rally.  Currently the 5.0 coupon is trading 10 ticks above Friday’s close and more then 15 ticks from the lows this morning.  Hard to say the cause of the rally as the Dow is not open yet, no economic reports have been released and no headlines have come across the wire.  Maybe investors feel mbs have been oversold over the last 2 trading days and now are ripe for  bottom feeding.  Hopefully this trend will continue throughout the day.  As for me, I am floating this morning as rate sheets have yet to come out but should be hitting our emails soon.  It will be interesting to see how investors price those rates sheets this morning but in my opinion we should see 5.125 to 5.25 being par rate with most lenders.  If we can hold these gains and improve some more, we should even see 5.0 par with some lenders.  But days like these, lenders are somewhat conservative in pricing especially in light of mbs first selling off pretty dramatically this morning.  This gives us more reason to enjoy the waters and continue are leisurely float.