Mortgage Market update 3-26

Mortgage backed securities (MBS) prices are higher, FNMA 4.5% coupon 101.80bps, +10bps (rates lower) as the Treasury prepares to sell $24 billion 7yr notes, the third auction this week of a record $98 billion in notes. The U.S. is selling record amounts of debt to revive economic growth, service deficits and cushion the failures in the financial system. 4th quarter Gross Domestic Product (GDP) was revised downward to -6.3%, reflecting sharply lower estimate for inventories and exports. The revisions were minor and does not change the view that the economy is mired in deep recession. GDP is the broadest measure of aggregate economic activity and encompasses every sector of the economy. Jobless Claims rose 8k to 652k while the total benefit rolls jumped 122k to a record 5.56 million, indicating more people are spending longer periods out of work and point to steady and severe erosion in the labor market. After the run of above average supply offerings, we may be in store for a period of strengthening MBS which would allow lenders to pass along secondary market gains with a little less anxiety over their ability to protect their pipelines from interest rate risk