Mortgage backed securities (FNMA 4.50 MBS) lost -25 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move higher.
Overview: After a brief pause in the sell-off of Mortgage Backed Securities (MBS) two weeks ago, they resumed their downward trend last week which continued to push fixed mortgage rates upward. The FOMC Minutes gained the most attention of long-bond traders last week and it's consistently "hawkish" tone did provide a little more pressure to pricing.
Taking it to the House: September Existing Home Sales were a little lighter than expected (5.15M vs est of 5.30M). But there were some bright spots. The median sales price reached another new high and is now $258,100 which is up 4.2% from this time last year. Total sales are now up 4.1% on a yearly basis. Inventories got a little relief with 4.4 months of supply vs 4.2 months last year. Weekly Mortgage Applications hit a 17 year low. Mortgage Applications dropped by -7.1% overall, led by a steep drop of -9.0% in Refinance Applications. Purchase Applications dropped by -6.0%. New Housing Starts were lighter than expected (1.201M vs est of 1.237M). Building Permits were also light (1.241M vs est of 1.280M).
The Talking Fed: Former Fed Chair Alan Greenspan said that the 50 year low Unemployment Rate coupled with record number of job openings (JOLTS) will force up wages and inflation. He also said that "This is the tightest market, labor market, I've ever seen."
We got the Minutes from the last FOMC meeting where they raised their Fed Fund rate by 25 basis points and released their economic projections.
Overall, the tone of Minutes was "hawkish" which really wasn't a surprise given Fed Chair Powell's recent comments since the last FOMC meeting. Here are some key highlights from the Minutes.
• A few participants expected that policy would need to become modestly restrictive for a time
• A number judged that it would be necessary to temporarily raise the federal funds rate above their assessments of its longer-run level in order to reduce the risk of a sustained overshooting of the Committee's 2 percent inflation objective or the risk posed by significant financial imbalances
• "Economic activity rose at a strong rate,'' household spending and business fixed investment "grew strongly,'' and a few participants saw recent data reflecting a stronger economy than they expected
• "Tightening resource utilization and an increasing ability of firms to raise output prices were cited as factors that could lead to higher-than-expected inflation"
• "Some participants commented that trade policy developments remained a source of uncertainty for the outlook for domestic growth and inflation."
• "With regard to upside risks, participants variously noted that high consumer confidence, accommodative financial conditions, or greater- than-expected effects of fiscal stimulus could lead to stronger-than-expected economic outcomes."
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