The Mortgage Design Market Update 07-06-09

Mortgage Backed Securities are pretty much flat today, having traded in a solid sideways pattern for the past week.  There was a good amount of positive news on the housing front, with pending sales improving and with home prices showing signs of leveling.  This week will prove to be an important one, as mortgages bonds have been trading in a tight pattern, and they will need to break out of this range one way or another.

The ISM Services index came in this morning, showing that these sectors are contracting less than expected with a reading of 47 versus consensus estimates of 45.5.  This also points to the potential for increased consumer spending, so it will be interesting to see how these numbers coincide with the rest of this week’s economic reports.

With mortgage backed securities trading in a tight range, we are continuing to float but very cautiously.  Once the market turns, it will do so quite quickly.  We will keep you posted of any changes.

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The Mortgage Design Market Update 07-02-2009

Mortgage Backed Securities have enjoyed a slight run over the last couple of days, currently trading just above its ceiling of resistance.  Thus far this morning, the mortgage bond market is up again on the heals of some bond friendly economic reports.

Taking the headlines today was the release of the Non-Farm Payroll report, which came in much worse than expectations with a decline of -467,000 versus estimates of -363,000.  This has driven the unemployment rate to a 26 year high at 9.5%, but that was slightly better than the 9.6% economists had predicted.  Still, most believe the rate will jump over 10% before getting better, and if you really look at the numbers that include those who have settled for part time employment, that number is much worse.  Also, the average work week has dropped to 33 hours as employers have turned to cost cutting measures to ensure their own survival.

Factory Orders just came in showing a jump in May.  Total orders rose by 1.2%, which is much better than the consensus estimate of 0.8%.  This further supports the feeling that we are starting to see a bottom to the current recession, and it has also helped to keep a lid on any real significant gains in the bond market.

Currently, Mortgage Backed Securities are up 15 bps this morning.  With bonds sitting right above the top of their trading channel, there is a good potential for them to retreat lower.  For now we are cautiously floating, but we will be watching the charts closely to ensure that we protect the gains in pricing we have received recently.  We will let you know if anything changes.

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The Mortgage Design Market Update 06-25-2009

Mortgage Backed Securities (MBS) have shot up today, after staying pretty much unchanged after yesterday’s release of the FOMC minutes.  There was nothing really in the statement that was too surprising, though they did indicate that the pace of contraction has slowed and that inflation was not of particular concern at this point.

Initial Claims came in this morning much worse than expectations with a loss of 627K versus estimates of 600K.   Those continuing to receive unemployment also jumped more than expected.  Both of these reports have helped to give mortgage bonds a solid boost this morning.

On a brighter note, the revised reading on Gross Domestic Product (GDP) indicated the economy declined from January through March by 5.5%.  This was better than the estimated drop of 5.7%, and it further supports the Fed’s statement yesterday that the economy is shrinking at a much slower pace.

Currently, Mortgage Backed Securities are up over 50 bps on the day, and they are trading just above the ceiling of their current channel.  There is an auction later today of 7-Year Treasuries that could weigh on pricing, but for now we are cautiously floating on this morning’s gains.  Should anything change, we will keep you informed.

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The Mortgage Design Market Update 06-24-2009

The stock market is up this morning, coming at the expense of mortgage backed securities.  Currently, the mortgage market is slightly down from yesterday’s close at -9 bps.  Today is an action packed day with several important economic reports, and most importantly the release of the Fed’s Minutes at 2:15 PM EST.

Yesterday, Existing Home Sales were reported up by 2.7%, which was less than expectations but  at least continues the positive momentum from April.  Interestingly, New Home Sales came in today worse than expectations with a drop of 0.6%.   Though slightly conflicting, both reports indicate that the housing market’s recovery will be slow and gradual.

Also reported today was a much better than expected Durable Goods Orders.  Analysts had predicted for there to be a slight decline of -0.5%, but the numbers actually came in at an increase of 1.10%.  This is the largest surge we have seen since September of 2004.  It is also the second straight month of gains.  Many are hoping that this is one more signal that we are headed in the right direction for a potential recovery from our current recession.

Mortgage Backed Securities are trading in a very tight channel.  Currently, they are sitting on a very important floor of support.  Traders are awaiting the much anticipated FOMC minutes not so much to see if they take any actions, but rather to the actual wording in the report.  There is speculation that they will announce their position on whether the programs they enacted to help drive mortgage rates and consumer financing will be slowed down or terminated.  As always, this report has the potential to really move markets, so we will be paying close attention to the market upon its release.  For now we are staying in a nuetral stance, but wairy of the potential for volatililty as the day progresses.  We will keep you informed of any major developments.

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The Mortgage Design Market Update 06-22-2009

Mortgage Backed Securities had another wild ride last week, ending the week down -25 bps.  Wednesday saw a nice spike in pricing, but as predicted that rally just could not last.    So far this morning the mortgage bond market has been up almost 34 bps from Friday’s close, but they have since dropped 13 bps having tested the ceiling of their current trading channel.

There are no economic reports today, and traders are anxiously awaiting the FOMC minutes that will be released on Wednesday.   The World Bank did revise their forecast on the global economy, indicating that it is going to contract more than they had previously thought.  They do expect the to see some economic growth towards the end of the year, but “the expected recovery is projected to be much less vigorous then normal”.   This has helped the mortgage backed security market to hold on this morning’s gains.

This week will prove to be yet another volatile time for both stocks and bonds.  With mortgage backed securities sitting close to the top of the trading channel, it might be prudent to lock on this morning’s rate sheets.  There is a chance that we could see a pop higher, but the downside potential is hard to ignore.  We will keep you posted of any developments.

www.themortgagedesign.com

The Mortgage Design Market Update 06-16-2009

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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The Mortgage Design Market Update 06-15-2009

Mortgage Backed Securities are up again today, giving some boost to you rate sheet pricing.  This is on the heals of two positive days both Thursday and Friday.  Hopefully this indicates that we have established a bottom and have created a new trading channel.

This is a big week in economic reports that will undoubtedly cause more volatility.  This morning the NY Empire Manufacturing Index was reported much lower than expectations, helping to give mortgage bonds a boost in early trading.

With the oversupply of treasuries, there is still much concern as to whether this recent rally can continue.  Technically, Mortgage Backed Securities are trading very close to the top of the current trading channel.  Those hoping that rates will get back down to the levels seen three weeks ago will most likely be disappointed.  Still, pricing has come down some from the high we saw on Wednesday of last week.  For now we are floating, but being very mindful that the market could turn at a moments notice.  Locking might be the safest route though.

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The Mortgage Design Update 06-10-2009

Mortgage Backed Securities are at their worst level of the day, putting lenders in a position to re-price for the worse.  The Federal Reserve just released their Beige Book, which is a snapshot of economic conditions.  In the report, the Fed indicated that though we are not out of the woods quite yet, the economic slide we have been on since last fall is finally moderating.  This has pressured mortgage bonds lower, and we are now trading just below the current floor of support.

Adding to the misery was the auction of 10-Year treasury notes, which is currently yielding close to 4%.  This is also pulling money away from the MBS market, and that trend can be expected to continue.  Tomorrow there is another action, this time for 30-Year Treasuries.  This will be in direct competition with mortgage backed securities, so it too could weigh heavily on the mortgage bond market.

If you still have your morning rate sheets, lock as soon as possible.  Lenders will surely be sending out new rate sheets for the worse.  This ride we are on does not seem to be settling soon.

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Mortgage Market Update 09-10-2009

Mortgage Backed Securities are again underwater this morning, as traders await the much anticipated Fed Biege Book that is set for release at 12:15 MST.  We saw a nice run higher yesterday, but much of those gains have already been erased this morning.

Commodity prices have been slowly rising recently, which has increased hopes that economic activity will improve.  With much of the recent economic coming in slightly in the positive, this signals that our recover is no doubt emminent.  Of course, this is further weighing on the mortgage bond market.

Currently, the FNMA 5.0% coupon is trading at -78 bps, but this included the bond rollover.  Mortgage Backed Securities are sitting right on an important layer of support right now, wich we hope can hold.  The release of the Biege Book will help to determine whether we have established a new trading channel or if there is still more room for deterioration.  We will be keeping a close eye on this, and we will let you know if anything major develops.

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Mortgage Market Update 06-09-09

Mortgage Backed Securities (MBS) are up 25 bps thus far this morning, as we are hopefully seeing a bottom floor of support being established.  After two weeks of losses a slight rebound should be expected, though even a significant jump will not get the market back up to the levels seen from March through May.  Mortgage Rates have risen by upward of a point since “Black Wednesday” when the mortgage bond market started its crash.

As the economy recovers, it should be expected that rates will rise as inflation starts to become a real concern again.  Also, with decent Yields in Treasuries, it makes little sense currently to purchase mortgage backed securities that are considered more risky.  This combination has been what is truly effecting the market.

Wholesale Inventories were reported this morning at -1.4%, which is slightly worse than estimates but is still an improvement from previous months.  The markets have had little reaction to this report, as most traders are awaiting a hefty round of Treasury auctions that will begin today.  These could have a significant effect on mortgage backed securities, so we will be watching this closely.

With mortgage bonds attempting to establish a bottom, it is safe for now to float to see if you can get even a smidgen of your pricing back.  Should anything change, we will keep you posted.

www.themortgagedesign.com