Surprise surprise… Mortgage Backed Securities are trading in a wide and volatile window this morning while trying maintain support at the 50-day moving average. For the most part, though, mortgage bonds have been unable to make in solid positive gains recently.
Weighing on mortgage backed securities was a better than expected ADP Jobs Report, which came in at 522,000 as opposed to estimates of 535,000. In addition, the ISM Service Index came in better than expected with a reading of 42.9 versus 39.0. Though these reports had positive notes, they were still ugly. Even so, stocks have enjoyed a slight boost this morning at the expense of mortgage bonds.
Currently the FNMA 30 YR 4.5% bond is trading down -3.130 bos on the day. There is some legitimate concern over how the Treasury will pay for all of the various stimulus and bailout packages. In order to do so, they will have to get that money through the sale of T-Bills. This morning the Treasury announced that it will be reintroducing the 7-year notes and that they will double the number of 30-year bond offerings. These actions have a tendency, and recent history, of putting selling pressure on Mortgage Backed Securities. We will wait to see how the auctions are received by foreign investors and how they effect the mortgage bond market.
