After being closed for 3 days, there are no fireworks for Mortgage Backed Securities (MBS) this Inauguration morning. In fact, they are lacking any enthusiasm as they opened lower... below the 25 day moving average and support, plunged 38 basis points searching for the next support level, and thankfully caught a slight bounce back. Currently MBS are down 9...and rates are higher from Friday.
Banks continue to feel the pain. Bank of America announces they are cutting 4,000 jobs in New York. Regions Financial is reporting losses, State Street reporting drop in profits of 71%. Financial stocks opened lower this morning for top banks - Wells Fargo, Bank of America, JP Morgan Chase, and Citigroup.
No economic reports are set for release today...in fact, the only reports this week are on Thursday when we will get a read on the housing industry by way of building permits and housing starts. Also in the mix are the Weekly Initial Jobless Claims and Crude Inventories. These reports will have little impact on bonds this week.
Bonds will react to fundamentals today...specifically Obama's Inauguration speech. Markets are tuned into issues of stimulus and how we pay for it. One UBS economists stated, "President-elect Obama's inauguration speech is expected to be long on hope but short on specifics." Is hope enough to move the markets this afternoon? Any euphoria might be short lived. It will be an interesting day.
From a technical standpoint, bonds have broken thru two support levels, touching a third and bouncing back. Intersecting this 3rd support level is a rising trend line that hopefully will add additional support. Currently stocks are getting beaten up. Should Bonds benefit...we will continue in a mostly sideways pattern with rates remaining fairly steady. However, should Bonds break below this trendline...put on your crash helmet - it will be a nasty, fast nose dive.