Mortgage Backed Securities had another wild ride last week, ending the week down -25 bps. Wednesday saw a nice spike in pricing, but as predicted that rally just could not last. So far this morning the mortgage bond market has been up almost 34 bps from Friday’s close, but they have since dropped 13 bps having tested the ceiling of their current trading channel.
There are no economic reports today, and traders are anxiously awaiting the FOMC minutes that will be released on Wednesday. The World Bank did revise their forecast on the global economy, indicating that it is going to contract more than they had previously thought. They do expect the to see some economic growth towards the end of the year, but “the expected recovery is projected to be much less vigorous then normal”. This has helped the mortgage backed security market to hold on this morning’s gains.
This week will prove to be yet another volatile time for both stocks and bonds. With mortgage backed securities sitting close to the top of the trading channel, it might be prudent to lock on this morning’s rate sheets. There is a chance that we could see a pop higher, but the downside potential is hard to ignore. We will keep you posted of any developments.
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