On the supply side, outside of the weekly 3 and 6 month T-Bill auctions on Monday , there is only one short term Treasury auction of $30 billion in reopened 4-week bills Tuesday.
Economic news from Friday showed that business inventories have expanded modestly faster than realized over the past few months. Augusts’ gains were +0.5% versus an expectation of +0.4%. July’s increase was revised up to +0.5% from +0.4% previously reported. Retail sales gained 1.1% in September, a seven-month high, with autos surging 3.6%. This is in line with the jump in unit sales to a 13.0 million unit annual rate from 12.1, and ex auto sales rising 0.6%.
Last week the treasury market witnessed another week of long end losses, leaving yields above to where they were on September 20 before the FOMC announced the larger than expected portfolio extension plan.
On Friday, there were heavy two-way flows on the day in MBS, (especially in FNMA 3.5% and 4.0% coupons); money managers and financial institutions were buyers, while servicers and originators sold. Higher coupons performed better on money manager buying. For the day originations totaled ~$1.8 billion.
As far as the primary side, lenders have reported a moderate slow down in production activity, with lock volume flat to down 30% week-over-week. An informal survey conducted last week displayed that the 30yr fixed rates have increased to the 4.25% – 4.5% range and the 15yr
fixed rate increased to 3.375% – 3.5% range due to lower MBS prices and lenders’ capacity constraints to fulfill and process originations from high refinance volumes.