Mortgage Bonds opened sharply lower, but have recovered from their worst levels. Yesterday, a wild sell-off in Bonds was sparked by good economic news from China, speculation that the European Central Bank would consider more Quantitative Easing of their own to aid their troubled member countries and better than expected ADP numbers. And this sell-off was exacerbated as mortgage-backed security portfolio managers, in an effort to manage their portfolio risk, sold huge positions of MBS late in the day.
This morning, Initial Claims were reported at 436,000, above the 422,000 expected and up from the slightly higher revised 410,000. This number is a little disappointing after seeing last week’s 407,000 reading – however the 4 week moving average did decline to 431,000, the lowest 4-week moving average since August 2, 2008. This is an encouraging sign and tells us that the labor market is getting better. Bonds did improve from it’s worst levels as the markets were expecting and hoping for a better number.