AM Market Update

Mortgage backed securities (MBS) lost -49 basis points from last Friday's close which caused 30 year fixed rates to move higher. This ended the bond rally that had lasted for the two weeks prior to last week.
We had a spread of 124 basis points between our highs and lows of the week. We were in a Locking Bias all week long, we hope you profited from it.
As we have discussed, MBS sell off when there is positive economic news. We certainly could have sold off even more given last week's data with Durable Goods Orders much stronger than expected (4.2 vs 0.5) and the Consumer Sentiment Index rising from 84.1 to 85.1. Existing Home Sales missed the market expectations but was still robust. New Home Sales enjoyed some nice gains in terms of unit sales and price increases.
Demand for our 7 year Treasury auction saw some decent demand but our 5 year and 2 year auctions saw decreased demand.
MBS would have lost more ground (even higher rates for you) if it weren't for a WSJ article that speculated that the Fed would change their language at this week's FOMC meeting to calm the markets that they would not be increasing their rates for a long time. We agree. They will certainly leave their Fed Funds rate alone but they will eventually have to start to pull back on bond purchases and those bond purchases are what impacts your mortgage rates...not their Fed Fund rate.

This Week's Agenda
Date Time (ET) Economic Release Actual Market Expects Prior
29-Jul 10:00 AM Pending Home Sales - -1.70% 6.70%
30-Jul 9:00 AM Case-Shiller 20-city Index - 10.50% 12.10%
30-Jul 10:00 AM Consumer Confidence - 81.6 81.4
31-Jul 7:00 AM MBA Mortgage Index - NA -1.20%
31-Jul 8:15 AM ADP Employment Change - 175K 188K
31-Jul 8:30 AM GDP-Adv. - 1.10% 1.80%
31-Jul 8:30 AM Chain Deflator-Adv. - 1.20% 1.20%
31-Jul 8:30 AM Employment Cost Index - 0.40% 0.30%
31-Jul 9:45 AM Chicago PMI - 51.5 51.6
31-Jul 10:30 AM Crude Inventories - NA -2.825M
31-Jul 2:00 PM FOMC Rate Decision - 0.25% 0.25%
1-Aug 7:30 AM Challenger Job Cuts - NA 4.80%
1-Aug 8:30 AM Initial Claims - 345K 343K
1-Aug 8:30 AM Continuing Claims - 2995K 2997K
1-Aug 10:00 AM ISM Index - 51.5 50.9
1-Aug 10:00 AM Construction Spending - 0.20% 0.50%
1-Aug 10:30 AM Natural Gas Inventories - NA 41 bcf
1-Aug 2:00 PM Auto Sales - NA 5.7M
1-Aug 2:00 PM Truck Sales - NA 6.8M
2-Aug 8:30 AM Nonfarm Payrolls - 175K 195K
2-Aug 8:30 AM Nonfarm Private Payrolls - 195K 202K
2-Aug 8:30 AM Unemployment Rate - 7.50% 7.60%
2-Aug 8:30 AM Hourly Earnings - 0.20% 0.40%
2-Aug 8:30 AM Average Workweek - 34.5 34.5
2-Aug 8:30 AM Personal Income - 0.50% 0.50%
2-Aug 8:30 AM Personal Spending - 0.40% 0.30%
2-Aug 8:30 AM PCE Prices - Core - 0.20% 0.10%
2-Aug 10:00 AM Factory Orders - 2.20% 2.10%

We have a massive week for economic data to absorb with the focus clearly on two main events.
Wednesday's FOMC meeting and subsequent interest rate decision and policy statement could cause huge ripples in the market place and then Friday's Non-Farm Payroll report is probably the biggest event of the week.
There are no major Treasury auctions this week. Be prepared for plenty of market volatility.

There could be good opportunity to take addvantage of lower rates this week, but you will need to be on the edge of your seat in the event the market takes a quick turn for the worse.