MBS Purchase Plan

Surprisingly, the big news this week for mortgage markets was not the Employment report. Instead, the announcement that the government will purchase large quantities of MBS caused a nice rally at the end of the week, and mortgage rates ended lower.

On Thursday, President Trump said that the government will purchase $200 billion of mortgage-backed securities (MBS). Few details about the plan are known at this point, but its goal is to lower mortgage rates and make housing more affordable. The potential for added demand for MBS caused their yields to fall and thus mortgage rates to decline. 

The latest JOLTS (job openings and labor turnover rates) report, covering the month of November, caught investors by surprise. At the end of November, there were just 7.15 million job openings, far below the consensus forecast of 7.60 million and the fewest in more than a year. Hardest hit this month were the leisure/hospitality, health care, and social assistance sectors. A smaller number of openings suggests that companies face less pressure to raise wages to hire enough workers, a sign of weakness for the labor market.

Two other significant economic reports released this week by the Institute of Supply Management revealed mixed results. The ISM national services sector index rose to 54.4, well above the consensus forecast, to the highest level of the year. Meanwhile, the national manufacturing sector index unexpectedly fell to just 47.9, the lowest level since October 2024. Readings above 50 indicate an expansion in the sectors and below 50 a contraction. This was the tenth straight month that the manufacturing index was under 50, while the services index has generally held above that level. The higher tariffs on foreign goods imposed last year may provide a lift to domestic manufacturing companies over time and help close the performance gap with services.

Looking ahead, investors will continue to monitor comments from Fed officials for hints about future monetary policy. For economic reports, the Consumer Price Index (CPI), a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services, will come out on Tuesday. Retail Sales will be released on Wednesday. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of the economy. Existing Home Sales also will come out on Wednesday.