Daily Market Update 1/4/13

Mortgage rates moved higher Friday reflecting a sharp sell off of mortgage-backed securities (MBS) late Thursday.  Yesterday, unfavorable repricing took place following the release of Minutes from the December 12 FOMC meeting of the Fed showing far less support for continued purchases of Treasurys and MBS than investors had expected.  Several Fed officials thought it would “probably be appropriate to slow or to stop purchases well before the end of 2013”.  In short, when the Fed scales back asset purchases, reduced demand is likely to push MBS prices lower, thereby increasing interest rates.  Trading has been extremely volatile since the release.  In economic news this morning, the economy added 155,000 jobs last month, slightly more than expected.  The Unemployment Rate remained at 7.8%.  The Institute for Supply Management services index rose to 56.1, beating forecast.  Readings above 50.0 indicate expansion in the services sector.  Factory Orders were unchanged.  An increase of 0.5% had been expected.  No other key data will be released today.

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