Mortgage backed securities (MBS) gained +6 basis points from Monday's close. On Monday, MBS lost -6BPS - so, pricing has netted out +0BPS for the week. The benchmark FNMA 3.50 November MBS has once again moved in a very narrow range.

We had two waves of economic data the first wave occurred between 8:30 and 9:00EDT:

Headline Retail Sales were weaker than expected (-0.1 vs est of 0.1%) this is generally good for bonds..but this reading could have been a lot worse. Offsetting that miss was the Ex-Auto data which hit consensus estimates at 0.4%.PPI was very tame and was lighter than expectations (-0.1 vs est of 0.2%). Bonds love low inflationary data. But, core PPI matched expectations at 0.1%.The Case-Shiller Home Price Index once again showed strength in the housing market with a 12.8% gain in home prices which is the best reading since 2006. This economic strength was a tad negative for bonds, however the home price data is widely available through a variety of previously released economic reports.The net effect of the first wave of economic data was only 6 BPS from our morning highs to our early morning lows which tells you that the bond market basically ignored the early data.

The next wave of data hit at 10:00EDT with Business Inventories and Consumer Confidence. MBS did react (briefly) to the much weaker than expected Consumer Confidence data (71.2 vs estimates of 75.3). MBS moved upward (better pricing) from -3BPS to +5BPS. That is ONLY an +8BPS swing on a HUGE miss on Consumer Confidence. Normally, we would see a much bigger swing in reaction to a miss like that.

At 1:00EDT, we had a 5 year U.S. Treasury auction: $35 billion at 1.30% with a bid-to-cover ratio of 2.65 which was weaker demand than the recent average of 2.68. The benchmark long term bond did not materially react to this auction.

MBS had their worst pricing levels at 9:30EDT (-3BPS from Monday's close) and their best pricing levels at 1:47EDT (+16BPS from Monday's close). This is only a difference of +19BPS from our intra-day highs to our lows...that's how narrow our trading session has been.

Yesterday was yet another example that the bond markets and stock markets are trading independently of each other as MBS gained only +6BPS but the DOW shot up over 100 points.

Mortgage RatesAnthony HoodEquity Investment CapitalOffice: 949-891-0067Email: tony@equityinvestmentcapital.comwebsite: www.equityinvestmentcapital.com