Mortgage Backed Securities (MBS) have shot up today, after staying pretty much unchanged after yesterday’s release of the FOMC minutes. There was nothing really in the statement that was too surprising, though they did indicate that the pace of contraction has slowed and that inflation was not of particular concern at this point.
Initial Claims came in this morning much worse than expectations with a loss of 627K versus estimates of 600K. Those continuing to receive unemployment also jumped more than expected. Both of these reports have helped to give mortgage bonds a solid boost this morning.
On a brighter note, the revised reading on Gross Domestic Product (GDP) indicated the economy declined from January through March by 5.5%. This was better than the estimated drop of 5.7%, and it further supports the Fed’s statement yesterday that the economy is shrinking at a much slower pace.
Currently, Mortgage Backed Securities are up over 50 bps on the day, and they are trading just above the ceiling of their current channel. There is an auction later today of 7-Year Treasuries that could weigh on pricing, but for now we are cautiously floating on this morning’s gains. Should anything change, we will keep you informed.
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