Mortgage backed securities (MBS) lost -2 basis points from Wednesday's close.

The trading channel wins again!

Wednesday, MBS traded above our trading channel...only to be hammered -41BPS from their highs to close back within our channel.

Thursday, MBS traded below our trading channel....only to rally +13BPS to trade back within our channel.

MBS started the day up +22BPS on a slightly weaker than expected Weekly Initial Jobless Claims (340K vs est of 339K), MBS were limited though as our ceiling of resistance but a cap on any real gains.

At 9:45EDT we got the Chicago Purchasing Manager's Index (PMI) and it came in at a block-buster rate of 65.9 which is ridiculously high given that a reading of 50 shows manufacturing expansion. The market was expecting 55.00, this was negative for bonds because it shows strong manufacturing and economic expansion. As a result, MBS sold off -35BPS and broke below our floor of support located at the bottom of our trading channel but did eventually crawl back above our support level.

The end result is that MBS just logged our seventh straight day of trading in the exact same trading channel.....the very definition of moving sideways.

Monthly Round Up:The benchmark FNMA 3.50 MBS coupon started October with a price of 101.88 and closed at a price of 102.53. That is a +65BPS improvement for the month which push mortgage rates lower.

Mortgage Rate

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