Mortgage bond prices improved slightly for the week on mixed news. Most of last week’s high impact reports on the economic calendar (ISM Survey, Chicago PMI) were of the "bad, but not as bad as expected variety." They showed a contracting economy, but not a severe or rapid as some had come to expect. Adding to the cautious optimism was Ben Bernanke’s congressional testimony, during which he struck an appropriately bearish-yet-positive tone and suggested that the economy may well recover in the second half of 2008.
The job reports, however, tempered the markets burgeoning "the worst is over" enthusiasm – initial jobless claims and non-farm payrolls both posted poorer than expected numbers at 407k
and -80k respectively, which gave mortgage bonds a late-week boost and improved benchmark 30 year rates by .125% or so.
The minutes of the last Federal Open Market Committee Meeting, which will be released Tuesday, stand out as the main event on this week’s economic calendar. Recall the Fed cut a somewhat dissapointing 75bps (rather than 100bps) with two dissenting voters arguing for a smaller cut. Expect market participants to pore over the minutes, paying particular attention to the meaning and import of the dissenting votes from Plosser (Minneapolis) and Fisher (Dallas). Any hints of a Fed shift from "economic rescue" (more rate cuts) to "inflation fighting" (stop cuts, maybe hike) may cause mortgage rates to worsen.
This week also marks the beginning of earnings season, so bonds may take their cue from stocks accordingly. Pending home sales, and consumer sentiment, though second tier numbers, also bear watching, since there is a paucity of other macroeconomic data to digest this week.
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