Mortgage backed securities are having a very ugly start to the day.  Yesterday, mbs rallied early then sold off to close about where they opened but it appears the downward pressure will continue today.  No real cause for the selling other then very light volume and end of year where investors want to go to cash to make the balance sheets look good.  Quite often I refer to low volume as a reason for a big swing and the best way I can illustrate that to you is to have you think of baseball.  A player has a batting average, if the player is up to bat he might get a hit making his average 1000%, but lets say the next at bat he strikes out, well his batting average will plummet to .500 so there was a big swing in the average with only 1 at bat.  Now, lets say the batter had 100 previous at bats, how much will the 1 for 2 in the prior game effect the yearly average, well very little.  That is basically what we mean when we speak of low volume of trades having a much larger impact to pricing.  We are not surprised by this sell off and we still feel the next month rates will improve, we just need to get past this road bump and get into next year so we can get into high gear. 

As far as economic data, we did get some reports.  First, we got the Chicago PMI, which is a measure of the strength of the manufacturing segment around Chicago.  Economists where expecting a reading of 33 but the reading came in better at 34.1 which is still at very low levels and signals our economy is not expanding.  Since this came is slightly better, this is a negative for mbs.  Next we got Consumer Confidence, economists where expecting a 45.0 reading but the number came in much worse at 38.0 which is an all time low, this is a positive for mbs.  Lastly we got the Case/Shiller home price index which showed a year over year price decline of 18%.  Leading the way is San Diego with a 3.05% drop, followed by Miami at 2.97% drop.  On the yearly basis, the biggest price declines were in Las Vegas at 31% drop, Miami at 29%, and Los Angeles at 28%. 

As I have been typing this update, mortgage backed securities have moved off the lows, but still down quite a bit on the day.  In related news, the stock market is up 65 points and oil is back below $40 at $38.29.  If your loan is not already locked, then by default you are in the float club.