Morning Report: foreign investors investing in MBS again 8/15/16

Vital Statistics:

Last Change
S&P Futures 2185.0 5.0
Eurostoxx Index 346.5 0.4
Oil (WTI) 44.8 0.3
US dollar index 86.3 -0.2
10 Year Govt Bond Yield 1.54%
Current Coupon Fannie Mae TBA 103.3
Current Coupon Ginnie Mae TBA 104.2
30 Year Fixed Rate Mortgage 3.52

Markets are higher this morning as emerging markets rally. Bonds and MBS are down

We will get a lot of data this week with housing starts and the FOMC minutes on Wednesday. The minutes are probably the most likely event to affect bonds. Earnings season is largely over except for the retailers.

The Empire State Manufacturing Survey fell in August, according to the NY Fed. New orders were flat. Employment contracted.The 6 month outlook dimmed as well.

Foreign investors are beginning to wade into TBAs again as sovereign debt yields continue to offer nothing. Ginnie Mae TBAs stand to benefit the most, which means FHA and VA pricing should improve relative to Fannie Mae pricing. The next event to watch from the Fed will be their own TBA purchasing. The Fed is still re-investing maturing proceeds of their MBS portfolio back into the market. Part of policy normalization will involve ending this practice.

Friday’s weak retail sales data caused some strategists to take down their Q3 GDP numbers from the mid 2% to the low 2% range.

Homebuilder sentiment improved in August to 60 from 58. We are entering the seasonal slowdown for the builders, which coincides with football season.

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