MBS Still losing Ground This Morning

Mortgage backed securities have been losing ground now for several weeks, and today is no exception.   After losing 6BPS yesterday, at 11:00AM before the announcement of the Treasury report, we are negative on the MBS pricing by 9BPS, while the 10yr is holding steady at 2.38% where it opened this morning. The news of the day; President Trump fires FBI Director Comey. It’s mostly political and is not having any impact on markets - nevertheless, it will be the topic most of the day.

This morning’s news saw Weekly Mortgage Applications increased by 2.4%, led by a 3.0% increase in refinances and a 2.0% increase in purchase applications.  Regarding inflation, the March Import Price Index jumped and doubled the market expectations while February was revised upward as well.

Yesterday crude declined $0.43, this morning up $0.71. Important to keep an eye on crude as an indicator of inflation expectations; crude continues to influence other commodity prices, most industrial commodities higher this morning.

President Draghi said it’s still too early to say that the ECB has been effective in raising inflation (growth) saying "it is too early to declare success. Underlying inflation pressures continue to remain subdued and have yet to show a convincing upward trend."

Once again, we're not looking for a major move today in mortgage rates. Given the lack of economic news due out today, we expect mortgage rates to continue to trade in a very tight range. The stock market a little weaker this morning.  A good 10yr auction this afternoon and slipping stocks would support the 10yr bond and therefore MBS prices.