Update - MBS Market starting to sell off in mid-day trading again today. Alert to LOCK!
Here is today's Mortgage Market Snapshop from RateAlert.com:
Treasuries and mortgages opened soft this morning but by 9:00 the 10 yr and mortgage prices climbed back to unchanged. There is no economic data to deal with today, most of the chatter remains about G/S and the SEC fraud charges filed against them. This morning comments from G/S legal counsel. "We would never intentionally mislead anyone, certainly not our clients or our counterparties," Goldman Sachs Co- General Counsel Greg Palm said today on a conference call with analysts. "We have never condoned and would never condone inappropriate behavior by any of our people. On the contrary, we would be the first to condemn it and take all appropriate action. ‘‘Our responsibilities as a financial intermediary require it and our commitment to integrity and the firm's business principles demand it,'' Palm said. Palm said Goldman Sachs had ‘‘no incentive'' for the deal to fail, and lost more than $100 million on the transaction. G/S reported Q1 earnings that surpassed analysts' estimates on record fixed- income trading revenue.
According to a story on Bloomberg this morning, the SEC vote to sue G/S was 3 to 2 and was split on party lines. Two Democrats voted to charge G/S while two Republicans voted against the suit, the tie was broken by Independent Chairperson Mary Schapiro siding with Democrats. The SEC case signals the regulator could eventually target other banks over how much they told investors about at least $40 billion of CDOs that turned toxic as mortgage defaults soared to the highest level since the 1930s. Robert Khuzami, the SEC enforcement chief, said last week that the agency will aggressively pursue deals "that share similar profiles."
Looking over every news wire this morning, I can't find much that is of immediate interest to the bond and mortgage markets. As for the G/S suit, it isn't going to have much of an impact on the direction of interest rates. The original announcement of the suit last Friday has been digested and regurgitated; the stock market caved on Friday and a rush to safety into treasuries sent yields lower. By yesterday the shock had worn off; the DJIA rallied and the bond and mortgage markets gave back half of the improvements from Friday. This morning with little news the rate markets are flat with the stock index futures aiming for a solid opening. At 9:30 the DJIA opened +35, the 10 yr at 9:30 -2/32 and mortgage prices -2/32 (.06 bp) on 30s and -3/32 (.09 bp) on 15s.
At 11:00 Bernanke and Geithner will go before Barney Frank's Committee to talk about the failure of Lehman Bros. Yesterday the prepared statement from Bernanke was released so markets have a good idea what will occur at the hearings. Likely nothing that comes from the testimony will have any direct impact on the present rate markets. Bernanke will remind Barney that the Fed was not responsible for regulating Lehman and detail the steps the Fed didn't take to save the firm. Many blame the Fed for not saving Lehman and believe if Lehman were rescued the financial crisis would have been much less of a trauma.
Should be a quiet market today; the equity markets opened better than expected at 9:30 but going into 10:00 the indexes have settled down. The bond and mortgage markets, with nothing to digest will trade quietly today.