Mortgage rates continue to tick higher as the market shows a insistent disdain for the risks associated with investing in mortgage-backed securities.  MBS are similar to treasuries in that the price and the yield are inversely related, meaning as price goes lower, yields move higher and vice versa.  So as MBS move lower in price, mortgage rates move higher. Yesterday, in the lunchtime hours MBS made a dramatic move lower in price forcing lenders to reissue worse rate sheets.  This increased the par 30 year conventional rate mortgage by another .125% in rate.  By day’s end, most lenders were offering par 30 year fixed rate mortgages in the 5.5% to 5.625% range.   If you would like to see a graph of the day’s action, click here. 

Much like yesterday, the economic calendar is light today, but there were a few data sets to digest.  First out this morning is the ICSC-Goldman Store Sales report. This report is a weekly measure of the change in same store retail sales.  The report showed that for the week ending June 6, 2009, same store sales improved by 0.2% after falling 0.6% in the previous week.  Year over year same store sales are down 0.8%, last week the report indicated a 0.6% increase compared to sales one year earlier.   Next out is the Redbook which also gives us a measure of retail sales. This data set indicated that store sales are down 4.4% compared to last year. This follow a 0.1% increase last week.  On a month over month basis retail sales were down 4.3% from last month.

 Consumer spending drives our economy and at the moment it appears they are not spending, which goes against the belief that the recovery has begun. Are you increasing spending now or still hunkering down and only buying necessities?  I think this negative reading on retail sales will put extra weight on the monthly retail sales report coming on Thursday.  If you recall from yesterday’s blog, retail sales are estimated to show a sizable improvement over last month with a consensus of a 0.6% increase after last month’s disappointing 0.4% decline.  The weekly measures we received today suggest otherwise.

Tim Geithner, our Secretary of Treasury, is going to announce today which banks are allowed to pay back the TARP loans.    Apparently 10 banks will be allowed to repay the funds to a total of over $68billion.  On top of that will be just over $4billion in dividends.  So, the treasury made a small profit!  It will be interesting to see what the Treasury Department does with this money.  Secretary Geithner will be answering questions today from the Senate Appropriations Committee at 10:30 eastern.   

 The highest impacting event, not withstanding any potential tape bombs, taking place today will be the first of 3 treasury auctions for the week.  Today at 1pm eastern, the Treasury Department will auction off $35 billion of 3 year treasury notes.  Since the supply is known well in advance, the most important aspect will be the results.  High demand especially from indirect/foreign bidders will help to drive treasury yields lower and hopefully allow MBS to follow.   The MBS Commentary blog will have complete coverage and analysis shortly afterwards.

Tomorrow the action does pick up with the MBA Purchase applications index, International Trade numbers and the 2^nd round of treasury auctions with $19billion of 10 year treasury notes up for grabs. 

So far this morning, MBS are in the green, woooohoooo!!!!  Hopefully they can hold on to the gains throughout the day.  Early reports from fellow mortgage professionals are indicating that the par 30 year fixed rate mortgage is in the 5.375% to 5.625% range for the best qualified consumers.  With the improvement in MBS price this morning, lenders might pass along better rate sheets later today if we can hold these levels.   If you are currently floating a loan, check out MBS pricing by clicking here.