Mortgage Interests- Whats happening

02/05/2010

1. What happened yesterday?
2. What is on the agenda for today?


1. What happened yesterday? We gained +37BPS from Wednesday. The following economic data was released:

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
4-Feb	8:30	Initial Claims	30-Jan	480K	455K	472K	470K
4-Feb	8:30	Continuing Claims	15-Jan	4602K	4581K	4600K	4602K
4-Feb	8:30	Productivity-Prel	Q4	6.20%	6.50%	7.20%	8.10%
4-Feb	8:30	Unit Labor Costs - Preliminary	Q4	-4.40%	-3.50%	-1.50%	-2.50%
4-Feb	10:00	Factory Orders	Dec	1.00%	0.50%	1.00%	1.10%

Initial Jobless Claims increased 8K and the prior week was revised upward.  The more closely watched 4 week moving average increased 11,750.  This will be viewed as bullish for MBS pricing.

Productivity is always the great equalizer for MBS as strong productivity offsets inflation.  While productivity was up 6.2%, this was less than the consensus estimates and much lighter than the prior period's 8.1%.  This is mildly bearish for MBS pricing.

Factory Orders were 1.0% which was double the consensus estimates of 0.5%. And is a positive for the economy.  But the market shrugged it off.  It is important to note that we have had huge gains in PMI, ISM, and Factory Orders.  These trends cannot be ignored.  They are the single-best indicators of growth.  We can have increased orders and manufacturing without hiring people back.  Eventually the market will take heed these manufacturing sector growth trends.  But for now, traders are focused on jobs, jobs, jobs.

Our run up in MBS price was due to two main factors: One, the DOW was in the toilet at -271 so there was a flight to quality into anything - including MBS.  Two, traders were positioning themselves (betting) ahead of Friday's Unemployment Revision.

We started to lose steam and closed down off of our highs which is a sign of technical weakness.

2. What is on the agenda for today: We have a huge day for economic data:

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
5-Feb	8:30	Nonfarm Payrolls	Jan	-20K	15K	-150K	-85K
5-Feb	8:30	Unemployment Rate	Jan	9.70%	10.00%	10.00%
5-Feb	8:30	Average Workweek	Jan	33.30	33.20	33.20
5-Feb	8:30	Hourly Earnings	Jan	0.30%	0.20%	0.20%
5-Feb	15:00	Consumer Credit	Dec		-$10.0B	-$17.5B

Headline Unemployment was revised downward from 10.0% to 9.7% and Non-Farm Payrolls were revised downward from -85K to only -22K.  On the surface, this is very bearish for MBS pricing.  However there are also many other revisions to November, December data that is very mixed.  The market is still trying to digest the totality of this data.

Pre-Market Status: Locking.  Yesterday, we moved from a Neutral/Floating position earlier in the day to a Neutral/Locking status at 2:50EST.  We hope you took our advice and protected your pipelines.  Today's data does not support better pricing from yesterday's best levels