This morning has started out in a negative way following yesterdays move lower. Mortgage backed securities are down 10 ticks after yesterdays 5 tick move downward. This will cause lenders to increase rates by about .125%.
We did receive some reports today. First, the Productivity numbers were released. This report shows how productive our work force is, economists where expecting a 0.9% reading but the number came in higher at 1.3%. This shows that companies can produce more with less people which helps to keep wage based inflation in check. This should be a positive for mbs. Next, we got mortgage application numbers. This report is not a market mover but interesting none the less. Mortgage applications have increased 112%!!!! It is pretty clear that mortgage rates dropped, as refinance activity has picked up dramatically. Next, we got the ADP National Employment Report. This report was expected to show a loss of 200,000 jobs from last month, but the actual number came in higher at a loss of 250,000 jobs. This report has historically been wrong when compared to the official government numbers that we get on Friday and in general not a big factor but it is becoming more important.
Later today we will get the ISM Services index and the Beige Book from the fed. The Beige Book is published 8 times per year and it is a survey on the current economic conditions around the country. Neither of these items will have much effect on mbs trading.
As I have been writing this update, mortgage backed securities have moved off the lows of the day but still down 6 ticks. We will probably get our direction today from the stock market in a reverse action. If the stock market moves lower, we should move higher and we have termed this the stock lever.
As for float/lock recommendation that is a pretty easy call this morning. You should be in a floating stance. Since we are already down on the day, lenders rate sheets are already going to price in the damage that was done, thus no need to lock right now. However, if bonds drop further then we will change to a locking stance for short term loans closing in the next week. For longer term loans closing more then a couple weeks from now, I would suggest that you float even if we see a sell off further. It appears that we have pretty good support beneath us that should prevent a massive selloff which will lead to higher rates.