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Wednesday, February 17, 2016

Mortgage Bond Market Analysis - Hump Day and some Tug of War

It's Hump day... and it's a bit later than I normally write my post.  I wanted to wait until the Fed minutes were out to see how that would impact the market.  I did recommend locking yesterday in my post so if you read that and followed through, you were covered.  Let's take a look at the data from this morning.  The Producer Price Index (PPI) Ex-Food and Energy YOY came in at .6 vs. estimates of .4 and previous of .3.  The month over month number came in at .4 vs. estimates and previous of .1.  The MOM PPI including food and energy came in at .1 vs. estimates and previous of -.2.  While the numbers were hotter than expected and will put some pressure on pricing, they are still low and show no real threat of inflation, especially considering the fact that the Fed's target is 2.0.

Building Permits came in at 1,202 vs. estimates of ,1200 and previous of 1,204 - not a big deal here.  Housing Starts were a big miss at 1,099 vs. estimates of 1,171 and previous of 1,149.  Neither of these data points are much of a factor in bond pricing.  Industrial Production was up to .9 vs. estimates of .4 and previous of -.4.  Finally, Capacity Utilization was also up a tad as you might expect at 77.1 vs. estimates of 76.6 and previous of 76.5.  This is not much of a factor on bond prices.
This morning, the FNMA benchmark bond was down as much as 31 basis points (currently down 19) and the biggest influencing factor was probably the fact that oil was surging after Iran said that it likes the idea of a freeze.  The stock market has been moving in lock step with oil; the Dow and S & P are currently up around 1.5% while the NASDAQ is up over 2%.  The Fed minutes are helping the bond off its low as there was obvious concern about the ability of the US economy to perform well with the various global challenges that exist contrary to comments made by Janet Yellen recently.  Here's a tidbit from the minutes:

WASHINGTON (AP) -- Federal Reserve policymakers expressed growing concerns at their meeting last month about potential threats to the U.S. economy, including turbulence in financial markets, plunging oil prices and slowing growth in China and other emerging markets.

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