Current Price of FNMA 6.0% Bond: $98.28, Unchanged
Mortgage Bonds are backing up yesterday's rally with an impressive recovery today. Prices traded down as much as 16bp earlier in the day, but have since rebounded and made back all of the earlier losses.
Initial Jobless Claims were reported in line with expectations at 311,000 showing the labor market remains stable. The Producer Price Index (PPI) was reported at 0.9%, which was hotter than expectations of 0.6%. However, the Core PPI, which strips out volatile food and energy prices, matched consensus estimates with a 0.2% gain. The overall PPI has climbed 4.1% higher over the past 12 months, but the Core PPI has risen by just 1.6% over the same period. Overall, the year over year Core rate of PPI appears to be an encouraging sign that inflation is moderating on the wholesale level. The market initially reacted a bit negatively to this report, but has since shrugged it off and awaits tomorrow's more closely watched Core Consumer Price Index (CPI). Economists are expecting the Core CPI to be reported at 0.2% for the month of May.
This morning's Bond price reversal higher from the worst levels of the day is a very encouraging sign on the heels of yesterday's rally. We feel that tomorrow's CPI will likely be inline with expectations, which would help Bond prices further stabilize and move even higher.
As you know, we made a major position change yesterday from locking to floating. We are calling for a bottom at the floor we have identified at $97.84. We expect prices to improve further from here and gain momentum from a positive stochastic crossover.
David Kosmecki - AmStar Mortgage
http://www.americanstar.com
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