Mortgage bond prices remain near unchanged this morning failing to erase the steep losses from yesterday afternoon. The data this morning was generally bond-friendly. Weekly jobless claims rose to 667,000, higher than the expected 620,000 mark. Durable goods orders fell 5.2%, weaker than the expected 2.5% decrease. New home sales fell 10.2% in January, weaker than the expected 0.6% decrease. Debt supply remains a focus with the final auction of the week this afternoon.
The 2 year auction 2 days ago was relatively lackluster along with the 5 year auction yesterday. There is concern the 7 year auction will follow suit. The weakness yesterday came mostly from a report of the Freddie Mac delinquency rate being accelerated in January. In severe times bankruptcies generally increase. This casts doubt over the performance of corporate and mortgage bonds(even with the quasi-backing of the Fed).
From an investment perspective it is simple, you typically don't pay premiums to buy something with an uncertain future value. To sell whatever it is, whether it be a bond, house, or widgets/etc..., the price generally has to fall. Unfortunately in bond terms, as prices fall, rates/yields rise, which is what we saw yesterday afternoon.
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What is the 2, 5, 7 year auction you refer to?
ReplyDeleteReply to NRV Homes. The 2, 5, 7 year auctions are the 2 year Treasury, 5 year Treasury and 7 year Treasury notes. Should we see a strong demand for these notes at auction, it may lower interest rates throughout the days following the auction. This type of data is viewed as important to the mortgage industry. Thank you for your question.
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