Mark's Blog Report

The bond insurer Ambac posted worse than expected profits, losing 1.66 billion dollars.  If you remember the last time that bond insurers showed signs of instability; it was the single worst day we had for mortgage rates so far this year.  The story is not quite so bad this time around.  Traders have definitely reacted to the news with some selling the MBS market this morning.  Another sign that the news is specifically affecting mortgages and not fixed income is that treasuries have not lost any ground this morning whereas MBS are down slightly.

The damage of this news is mitigated by several factors, not the least of which being the overall weakness of the economy and generally worse than expected profits as we proceed along earnings season.

In other news, Mortgage Applications reported another downturn.  This time the reading was down 14.2%. This report tends not to be a major mover of the MBS market.

Traders are also reacting to news released this morning that Fannie Mae and Freddie Mac have just been approved by regulators to receive tax breaks due to loan losses.

The MBS market took a bit of a dive early this morning and has since rebounded a bit.  The 5.5% coupon is down 3/32nds day over day to 100-13 after touching the morning's lows of 100-08.  The Ambac news would normally be more salient, but it is tempered by the general tenor of weakness thanks to a lackluster earnings season and a continued predisposition for scheduled economic releases to fall short of expectations.

Yet again, we have no more scheduled releases as we head into the rest of our day which sets the stage for volatility.  The market has already shown a lot of directionality this morning.  To lock or float is a tough call as volatility is in order.  The 10 year WILL NOT be a good indicator of mortgage rates today as some of the news moving MBS is specific to mortgages and not fixed income investments in general.