The mortgage bond market is continuing on its volatile ways this morning, having dipped down to its lowest levels in earlier trading but have since rebounded to unchanged levels. Technically, mortgage backed securities are ripe for a reversal lower since we are trading at the very top of the current channel. Better than expected inflation readings this morning have helped to preempt any further declines.
Wholesale prices rose less than anticipated last month, with the Producer Price Index coming in at an increase of 0.2% versus expectations of 0.6%. Even with this slight increase, year over year wholesale prices fell 5% which is the largest drop in close to 60 years. In addition, Industrial Production dropped for the 7th straight month. These are all very tame inflation readings, and they are raising concern that the recovery could be moving at a slower pace than previously thought. They have even had some uttering fears of a potential for deflation, though most feel the moves taken by the Federal Reserve should prevent this from happening.
On a brighter side, Housing Starts were reported up 17.2%, which was the largest jump in 3 months. Applications for building permits also rose in May, reported up 4%. These are both very encouraging reports for the housing sector, and as we all know, without its recovery the rest of the economy’s health will remain in doubt.
Currently, Mortgage Backed Securities are hanging close to unchanged on the day. Many lenders already came out with a reprice for the worse, while others have sat on the recent gains in the market to make up for loses they took over the last couple weeks of volatility. It might be prudent to go ahead and lock your loans to take advantage of the better pricing we have received over the last couple of days. If you have the stomach to gamble, one could wait to see if mortgage backed securities can push above the current ceiling of resistance. Still, the technical signs point to an eminent reversal. When exactly that occurs is the only real question.
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