The Mortgage Design Market Update 07-06-09

July 6, 2009

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.


The Mortgage Design Market Update 07-02-2009

July 2, 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.

The Mortgage Design Market Update 06-25-2009

June 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.

The Mortgage Design Market Update 06-24-2009

June 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.

The Mortgage Design Market Update 06-22-2009

June 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.

The Mortgage Design Market Update 06-16-2009

June 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.

The Mortgage Design Market Update 06-15-2009

June 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.

The Mortgage Design Update 06-10-2009

June 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.


Mortgage Market Update 09-10-2009

June 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.

Mortgage Market Update 06-09-09

June 9, 2009

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.

Mortgage Market Update 06-08-2009

June 8, 2009

Just when we thought the mortgage bond market might take a breather from its dramatic slide, mortgage backed securities (MBS) continued the carnage from the previous week posting a whopping -267 bps by Friday’s close.  The decline in pricing has caused rates to increase by a full percentage point since this same time two and a half weeks ago.  Though an increase in rates was unavoidable, no one foresaw how quickly it occurred.

There were a couple of factors that created this downward spiral.  First, many of the economic indicators reported in the last three weeks have either been positive or they have not been as bad as was generally expected.  This indicates that the economy is slowly gaining strength, which is encouraging but not great for mortgage rates.  Secondly, Mortgage Backed Securities have had increasing competition from Treasuries since they are paying better margins.  In addition, the added supply of Treasuries continues to weigh on any gains in MBS.

With the drop in MBS, traders have switched their focus from the 4.5% coupon to the 5.0% coupon.  This is significant, as it indicates that a new trading channel is being established.  Unfortunately, this also signals that mortgage rates will not likely back down to the levels seen previously any time in the near future.   Though pricing is a little higher, one also has to realize that any rate in the 5% and 6% range is still historically low in comparison.  It will take some dismal economic reports to realize any real gain in pricing, and this week is chalked full of reports.  Of course, we will keep you posted of any changes.

Tomorrow’s Official Job Report 06/04/2009

June 4, 2009

Mortgage Backed Securities have been trading in wild swings since “Black Wednesday” when we lost over 175 bps to fall all the way down to the 200 day moving average.  Since that time, mortgage bonds have been clinging to this level.  This week say a slew of economic reports that came in slightly better than expectations, which is confirming many people’s speculation that the worst is behind us and that the recovery is starting to gain some wheels.  All of this resulted in inflationary concerns among traders.  As we have said, inflation is a very real issue we will no doubt have to contend with down the road, and the actions the government has taken is only going to further this potential.

So far today, we have lost over 95 bps in the mortgage bond market, and they have fallen below their current floor of support as traders position themselves ahead of tomorrow much watched Job Report and unemployment numbers.  Though we are expecting to see continued job losses, the trend has been showing lower numbers each week over the last couple of months.  This is a positive sign, and it could weigh on bonds.  Also, the unemployment rate is predicted to come in around 9.2%, which is high but not unexpected.  If these numbers come in worse than expected, then we could see a pop in mortgage backed securities.  The damage in the bond market has been done today, so it will take a very positive report to see more sell-off.  For now we will float into tomorrow’s report since we are already trading at the bottom of our current channel, which always signals a potential for a rebound.  Of course, nothing these days seem to react as they should so be careful.

Mortgage Market Special Report 05-28-2009

May 28, 2009

We apologize for the lack of reports the last two days, but hopefully everyone locked last Thursday or Friday in advance of the historic drop we saw yesterday in mortgage backed securities (MBS).  Though we had predicted a pull back from the highs reached last week, no one could have predicted the -175 bps that were lost yesterday.

After trading in a tight channel for the last two months, it was inevitable that bonds would come off these highs.   With the positive news on consumer confidence and existing home sales, we are seeing a beginning of belief that the economy is final showing small incremental gains even within the most dismal of reports.  Add to this a very real fear of future inflation with trillions in Treasuries and the continued need to print large amounts of money.

The yield between Treasuries and Mortgage Backed Securities has slowly been getting much tighter in the past week.  Treasuries are the safest investment available, but they do not pay as much as other vehicles.  MBS are safe, but with the issues in the housing market, they have become less attractive.  Add to this a smaller difference in the yield, and traders in a flight to quality, placed their money in Treasuries rather than the slightly higher risk mortgage bonds.

Many are wondering and speculating that the Fed will step in to rescue MBS with further purchases.  Unfortunately, the government is out of money, and to make up for the short fall, they will have to auction off more Treasuries.  So in essence, in order for them to have the ability to purchase more mortgage bonds they will be forced to sell more Treasuries.  This will further weigh on MBS, and will eventually lead to inflation.

All this being said, it is very doubtful that pricing will get back up to the levels we saw over the last two months.  We will see some spikes and windows that will lead to lower rates than current levels.  Still, the damage has been done, and those hoping to get back down to the 4.5% range will certainly be disappointed.

We did see a little bounce today, which should be expected after such a dramatic drop in mortgage backed securities.  The Fannie Mae 4.5% bond closed up 34 bps on the day.  Hopefully this can be sustained going into tomorrow’s trading.  Of course, everything is a gamble as witnessed this past week.

Mortgage Market Update 05-22-2009

May 22, 2009

What a difference a day makes!  As stated in yesterday’s post, bonds were ripe for a pull back, and that they did!  Mortgage Backed Securities (MBS) dropped over -41 bps, which took us back to the bottom of our trading channel.  This resulted in  a rate deterioration of .25% to .375%, depending upon the lender.  We have stated over and over that these windows of opportunity in pricing only last for short periods.  Given the technical signs in the bond chart, we had to expect some type of reversal.

Why did the market fall so sharply?  It was all do to the yield spread between Treasuries and Mortgage Backed Securities.   Over the last two days, the spread in yields between these two safe havens have tightened, making the increased risk of MBS less attractive to investors looking to park their money before the long weekend.

The bond market will be closing today early and will also be closed on Monday in observance of Memorial Day.  With that said, trading should be pretty light today.  Mortgage Backed Securities are sitting right at their floor of support, so for now we are carefully floating with hopes that the market can make a bounce higher come Tuesday.  Enjoy your extra day off!

Mortgage Market Update 05-21-2009

May 21, 2009

Yesterday, Mortgage Backed Securities were able to make a run above above their current trading channels after the release of the FOMC minutes from April that indicated a protracted recession and a lower fear of eventual inflation.  Mortgage bonds were able to post a 24 bps gain on this news prior to the market close.

Initial Jobless Claims came in slightly higher than expectations this morning, with a loss of 631,000 jobs, but it was better than last week’s reading of 643,000 losses.  On the other hand, the number of people continuing to claim benefits rose for the 16th straight time and hit a new record high since 1967.  Obviously there is still much weakness in the labor force, which will continue to hold the economy back from any real recovery.

The Leading Economic Indicators came in slightly higher than predicted, rising by 1%.  This is encouraging, as it is the first time that strengths among its components surpassed any weakness.

Currently, Mortgage Backed Securities are pretty much flat on the day.  Like last week, we are now just above a very formidible ceiling of resistance.  From a technical standpoint, bonds are ready for a slight pull back.  Thus it is our position to lock on your morning rate sheets as the downside far outweighs any positives.

Mortgage Market Special Afternoon Update 05-20-2009

May 20, 2009

The Federal Reserve released the minutes from their last meeting shortly ago.  Though some of the news was positive, the general message is that they see the economy improving, just not as quickly as previously expected.  Here are some of the key highlights that traders are focusing on:

  1. The GDP Forecast was cut again from -1.3 to -2.0, signaling further contraction.
  2. The Unemployment range increased from previous projections of 8.3% – 8.8% to 9.2% – 9.5%.
  3. The Core Personal Consumption Expenditure index (PCE) was revised upward from .9 – 1.1 to 1.0 to 1.5.
  4. Few saw an increased risk of inflation, and most expect inflation to be low for the next couple of years.
  5. The economy continues to face downside risks.

Mortgage Backed Securities (MBS) have shot up 21 bps directly after this release, as most of the information pointed towards a low risk of potential inflation in the near future.  We should see some lenders re-price for the better, while some will wait to see if traders’ sentiment can hold through tomorrow’s market opening.  For now we can comfortably float to see if we can capitalize on these gains.

Here is a link to the actual report:


May 20, 2009

Mortgage Market Update 05-20-2009

May 20, 2009

After closing slightly in the positive yesterday, Mortgage Backed Securities are again up this morning and pricing at the top of the their current trading channel.  There is little in the way of economic reports  today, but the Feds will be releasing the minutes from the last FOMC meeting.  This could have the potential to influence investor appetites, so we will be watching this closely to see exactly how it will effect bond trading.

Currently, mortgage backed securities are up 6.25 bps on the day.  As mentioned above, bonds are at the top of the trading channel with only 14 bps more to gain.  On the other hand, there is a potential -29 bps on the down side before pricing hits its current floor of support.  That being said, the risk obviously outweighs the potential rewards so a conservative locking stance might be the best recommendation.

Mortgage Market Update 05-19-2009

May 19, 2009

Mortgage Backed Securities dropped heavily yesterday following a solid week of gains last week.  Hopefully, you took our advice Friday, and you locked your pipeline.  As we stated, the bond was ripe for a pull backed given the technical signs shown in the bond charts.

Mortgage bonds are being helped this morning on weaker than expected housing data.  Housing Starts tumbled by 12.8% last month, which is the worst level in over 50 years.  In addition, Building Permits fell as well in April much more than analysts expected.  This is actually good news for the housing market, as this reports show that we are not putting further strain on inventory levels.  In order for the market to find a true bottom, the existing inventory of homes for sale must decline.

Not surprisingly, Homebuilder Sentiment rose for the 2nd straight month.   The Housing Opportunity Index, which measures consumer’s purchasing power, rose as well to its highest level in 18 years.  Those in the housing markets are hoping these reports are a signal that we are closing in on a bottom, though it will take some time to get there at this pace.

Currently, Mortgage Backed Securities are flat on the morning, and they are off of earlier highs.  For now we are going to float cautiously to see if pricing can rebound from the losses experienced from Friday through yesterday afternoon.  Most of the damage has already been done, so we are optimistic of a small rally.

Mortgage Market Update 05-15-2009

May 15, 2009

Mortgage Backed Securities (MBS) gained 9 bps yesterday, which is the fourth straight day to post increases.  Bond pricing is now at just above the current trading channel.  This could signal an eminent pull back, as investors capitalize on their profits.

The Labor Department released their Consumer Price Index (CPI) this morning, which came in pretty much flat and at expectation.  Year over year, consumer prices have dropped .7%, which is the largest decline since 1957.  Also, Industrial Production fell in April by .5%, which was pretty much in line with the .6% predicted.  Overall, these reports indicate that the economy continues to contract, just at a slower pace.  Though these types of reports can signal deflation, those fears have been minimized by the aggressive actions taken by the Federal Reserve.

On the bright side, consumer confidence rose to 67.9 from 65.1 in April.  This is important, as it will take a big swing in the general public opinion of the health of the economy to help spur on recovery.  With falling prices, it is only a matter of time when consumers start spending their money again since their purchasing power is getting stronger.

Currently, MBS are slightly down on the day.  From a technical standpoint,  bond prices have poked just above the current trading channel for the last 3 days.  In the past five months, pricing has never been able to stay at this level for more than three days before falling lower.  The retreats have been pretty quick, so there is a good chance for mortgage backed securities decline.  Thus, it is our recommendation to lock today, as the potential for gains are much less than the potential for losses.

Mortgage Market Update 05-14-2009

May 14, 2009

Mortgage Backed Securities (MBS) are pretty much flat on the day, despite an otherwise bond friendly Initial Jobless Claims report.  Mortgage bonds made a modest gain of 9 bps yesterday, but that was off of the 22 bp high.   This current trading channel is proving to be quite strong, which has helped to stabilize MBS.

Initial Jobless Claims rose to 637,000 last week, which was much higher than expected.  This was a complete reversal of last weeks reading of 605,000.  Also, the number of people continuing to receive unemployment benefits climbed for the 15th straight week, signaling continued weakness in the labor markets.  Surprisingly, many investors have shrugged off these reports this morning, as those numbers are still lower than the peak reached in March.

The Labor Department released the Producer Price Index (PPI) as well this morning, coming in better than expected with an increase of 0.3%.   Even with this gain, the  year over year Core PPI has fallen by 3.7%.  This could create anxiety over potential deflation, but most economist agree that the actions taken by the Federal Reserve thus far should prevent this from happening.

With mortgage backed securities sitting at the top of their trading channels, we are carefully floating to see if we can break above the ceiling of resistance that has been holding bonds back for the last two weeks.  Should bonds pop above this level, pricing could get much better.  Of course we will keep you posted of any developments.

Mortgage Market Update 05-13-2009

May 13, 2009

Wow!  What a change in sentiment from last week.  The stock market is down and the mortgage bond market is up following a much worse than expected Retail Sales report this morning.  Many people were hoping that the recent improvements in the labor force would translate to higher consumer spending.  Obvoiusly this is not the case, as people are holding on to their money and the savings rate continues to climb.

Retail Sales fell .4% last month, which was much worse than the flat reading that most economists and traders expected.  This follows a revised 1.3% drop in March.  Doubts are again surfacing about the economy’s recovery, as a rise in consumer demand is necessary for us to see an end to this recession we have been in since December of 2007.

Also weighing on the markets was the release of the Commerce Department’s Business Inventories report, which showed a decline of 1%.  Though this was in line with expectation, given the retail sales numbers that number could increase in the near future.

Currently, Mortgage Backed Securities (MBS) are up 12 bps on the day, but off of earlier highs.  Bonds are at the top of their current trading pattern, which could signal an eminent pull back.  The prudent move would be to lock your current pipeline to take advantage of recent gains.  On the flip side, should mortgage bonds break above the current ceiling of resistance, we could see some great pricing ahead.  As always, we will keep you posted of any major developments.

Mortgage Market Update 05-12-2009

May 12, 2009

Mortgage Backed Securities ended yesterday up 22 bps, which put many lenders in a position to reprice for the better.  So far this morning, the mortgage bond market has remained fairly flat, as is the stock market.  There are no market moving economic reports for release today, as traders await the details of retail sales tomorrow and the quarterly results coming out Thursday from some of the nation’s top retailers.

The median home price fell once again in the first quarter, as first time home buyers dominated the market looking for bargain deals in the short sale and foreclosure markets.  The median sales price nationwide was reported at $169,900, which is down 13.8% year over year.  With the $8000 tax credit, these sales are expected to rise through the end of the year.  This will help to finally establish a bottom to the market, as foreclosures are being taken out of the market.

Currently the FNMA 4.0% Mortgage Bond is trading down 3 bps, but are trading in a tight range.  For now we are floating to see if the market can make a convicted move up or down.  We will keep you posted of any developments.

Mortgage Market Update 05-11-2009

May 11, 2009

Last week we saw quite a wild ride in the mortgage bond market, as mortgage backed securities shot up Monday through Wednesday morning only to lose those gains through the end of the week.  This trading channel is proving to be very strong, with the ceiling above keeping a lid on any run higher and with the floor below acting like a trampoline.

The stock market is sliding a bit this morning as traders look to profit on last week’s gains.  This week should prove to be quite volatile with the release of first quarter earnings reports from many of the nation’s top retailers.  In addition, this will be a heavy week of consumer sentiment reports, as investors await to see if the positive trend in last week’s employments numbers translates to retail sales and consumer spending.

The Federal Reserve will officially begin begin their first purchases of Treasuries today, the intentions of which are to stimulate demand for these long term debts.  This could weigh on mortgage backed securities, so we will be watching this closely through out the week.

Currently Mortgage Backed Securities(MBS) are up anywhere from 20 to 25 bps on the day.  For now we are floating to see how the day takes shape.  We will keep you posted of any developments.

Mortgage Market Update 05-08-2009

May 8, 2009

The mortgage bond market lost 50 bps yesterday following a better than expected Initial Jobless Claims report and the release of the government’s “stress test” on banks that indicated they were not as poorly off as first thought.  The fall in pricing was halted by a very solid floor of support, which has continued to hold this morning.

Today’s Jobs Report affirmed the positive news that we saw in the ADP report and in Initial Jobless Claims.  We lost 539K non-farm payrolls in March versus expectations of 600K.  This is also way down from the prior period where we saw 699K job losses.  Though these are still high numbers, they do provide evidence that the economy is edging towards recovery.

After testing the floor of support yesterday, Mortgage Backed Securities have thus far bounced off this level to show some moderate gains this morning.  For now we can float with hopes of maintaining this positive momentum.  Should anything change, we will keep you posted.

Mortgage Market Update 05-06-2009

May 6, 2009

The mortgage bond market is up slightly this morning, but they have been unable to break above the strong resistance level that has kept a lid on any further pricing gains.  Mortgage Backed Securities continue to trade in a tight channel, and as stated in yesterday’s special report, it will take a solid push higher to see any real price improvements on our rate sheets.  So far today, most of the news being reported has been more stock than bond friendly.

The ADP Employment Report came in much better than expected this morning with only 491,000 jobs lost last month as opposed to the 708,000 losses reported in March.  Though this report is often times inaccurate, it does indicate an easing in unemployment.  This is yet another positive sign that the economy could be on the mend, and it is an encouraging indicator ahead of Friday’s official  Jobs Report.  Even with this report, both stocks and bonds have been clinging close to unchanged levels.  Many investors remain on the sidelines awaiting the results of government “stress tests” on banks that is due for release tomorrow.

With mortgage backed securities sitting at the top of their pricing channel, it might be best to lock in order to protect the gains we have thus far this week.  For now you could float to see if there are any reports that push bonds above current levels though.  Should there be any dramatic changes, I will keep you informed.

Special Report 05-05-2009

May 5, 2009

Mortgage Backed Securities are up to their highest levels of the day currently, which presents an interesting question of whether to lock.  Many are wondering if we will see the highs that we had at the beginning of last week.  There are a number of technical signs that indicate a favor towards locking to protect your pipeline.  Here is why.

We have been trading in a tight channel since the middle of March, and following last Tuesday’s high, bonds have dropped close to 80 bps.   Tuesday’s spike above this trading channel was mostly artificial, so the losses following were not unexpected.  The fall was halted by a firm layer of support underneath on Friday, which allowed us to comfortably float into this week.  As expected, Mortgage Backed Securities have rebounded higher for the last two days, smacking up against a ceiling of resistance.  This typically signals that bonds are ripe to drop once again.

With bonds sitting at the top of the trading channel, it will take a strong push to make a break above.   There are a couple of market moving reports coming out towards the end of the week, including the Jobs Report and the Unemployment numbers.  Recent numbers have been indicating that the declines in the labor market are beginning to bottom out.  That being said, it would take a buck in this trend and a very poor report to push bonds above its layer of resistance.

Mortgage Backed Securities have little room for further gains unless something completely unexpected occurs that drives money out of stocks and into the safe haven of mortgage backed securities.   The next layer of support below is 41 bps lower.  Thus, the potential for losses are much higher than the potential for gains.  A locking bias is recommended for now.

Mortgage Market Update 05-05-2009

May 5, 2009

Mortgage Backed Securities (MBS) ended yesterday up 22 bps, which was the first gain since the start of the bond market’s decline last Tuesday.  So far this morning, MBS have been able to further those increases, though they have retreated from earlier highs.

The Institute of Supply Management (ISM) Index was reported slightly higher than expectations, and though it still signals contraction in the services sector, it is at a slower pace.  This is encouraging, and it is one sign that the economic downturn is beginning to moderate.

Fed Chairman Ben Bernanke has been speaking in front of congress this morning.  Generally, Bernanke feels that the economy should pull out of its current recession and begin slow growth by the end of the year.  Still, the Feds forecast hinges on the government’s continued efforts to repair the financial system.

Though we have had some gains in the bond market over the last couple of days, Mortgage Backed Securities are battling a firm cieling of resistance that is keeping a lid on any further gains this morning.  It might be prudent at this point to lock, though for now I am cautiously floating to see if prices can break above the layer overhead.  I will keep you posted of any changes.

Mortgage Market Update 05/04/2009

May 4, 2009

Mortgage Backed Securities had a wild ride last week, having touched the top of our pricing window on Monday and Tuesday morning only to drop heavily by -79 bps through the rest of the week.  Fortunately, mortgage bonds were able to find a floor of support that stopped any further declines.

The National Association of Realtors announced this morning that the volume of Pending Home Sales rose by 3.2% In March, marking the 2nd straight month of increases.  This is a direct result of bargain home prices, historically low interest rates, and most importantly the tax credits being given to first time home buyers.  Many are hoping that this is a sign of some stabilization in the housing market.

Also reported this morning was better than expected increase in Construction Spending.  Most of this is due to non-residential and government building projects, but it is encouraging news.  There is still serious concern about the health of the commercial real estate market though.

Wall Street is anxiously awaiting the release of the bank “stress tests” that have been delayed from today to Thursday.  Early indications point to a need by most banks to increase capital to avoid failure in the event of a deepening or prolonged recession.  Three if the country’s biggest banks (Wells, BofA, and Citi) are already expected to be required to boost their financials.

Currently both stocks and bonds are enjoying a nice ride higher this morning.  With mortgage backed securities sitting just above a firm layer of support below, we will float for now in hopes of recovering some of last week’s losses.  If anything changes, we will keep you notified.

Mortgage Market Update 04/27/2009

April 27, 2009

Mortgage Backed Securities ended the week last week almost right where they started on Monday.   Earlier this morning, stocks started in the positive only to have given those gains back and then some in later trading.  Mortgage bonds are enjoying a rider higher as investors look for safe havens on the increasing threat and fears of a global pandemic from the Swine Flu that seems to have originated in Mexico.  It will be interesting to see how this development will effect the markets, though it already appears to have traders worried.

Wall Street is also anticipating the release of hundreds of first quarter earnings reports that will be announced this week.  Many are not so much concerned about the actual results as much as they are looking at future projections, and though several recent reports were promising there is fear that traders will begin to shrug off these reports, as they are barely beating even meager expectations.

On Wednesday the Federal Reserve will release its interest rate decision and policy statement.  There is little doubt that the Fed will continue to keep short term rates at present levels.  Investors will be listening closely, though, to the actual wording and tone of the Fed’s release.

Currently, the FNMA 4.5% Mortgage Bond is pushing up against the top of its current trading channel at +21.88 bps.   You should see slightly better rates this morning, which could be a good time to lock to protect the gains in pricing we have received.  On the flip side, there is a chance that bonds could push above present levels which would put lenders in the position to reprice for the better.  Should we see any major movements in either direction, we will let you know.

Mortgage Market Update 04/21/2009

April 21, 2009

Caution remains in trading today on the heals of poor corporate earnings reports released this morning.  Though stocks are up slightly so far today, much of this can be attributed to some buy backs after yesterday’s steep losses.

Coca-Cola Co., Merck & Co., Caterpillar Inc., and Bank of New York Mellon Corp. all reported worse than expected first quarter losses along with pretty dismal forecasts for the coming months.  This has confirmed fears that “the economy might not be stabilizing as hoped”.  Cynical investors feel that much of the recent profit reports from banks is solely due to free government money.  It will be interesting to see how things unfold this week with continued releases of corporate earnings reports.

Mortgage Backed Securities are pretty much flat currently, after coming down off of earlier highs this morning.  With no real economic reports today, the bond market will take much of its lead from stocks.  It might be prudent to lock on yesterday’s gains, though if you have the stomach you might want to wait to see what happens in the afternoon trading.  Should we see any major movements, we will let you know.

Mortgage Market Update 04/20/2009

April 20, 2009

Doubts regarding the recent profit reports from banks like Wells Fargo are weighing on stocks this morning.  There is still much concern circulating about the true extent of toxic debts that remain on these bank’s books.  This has also made many question the sustainability of these reported gains.

There is also further indications that this current recession could last through the summer and beyond.  The Leading Economic Indicator index declined for the third straight month with a drop of .3% which was slightly worse than expectations of a .2% decline.  This too is holding stocks down today, much to the benefit of mortgage bonds.

Currently Mortgage Backed Securities (MBS) are up a little over 20 bps on the day.  Thus, we recommend floating for now to see if bonds can continue to make gains.  If anything changes, we will keep you posted.

Mortgage Market Update 04/17/2009

April 17, 2009

Mortgage Backed Securities are struggling again today, after losing -9 bps in yesterday’s trading.  This has pushed bonds back down below that important floor of support at the 25-Day Moving Average.   Both Citigroup and GE reported much better than expected profits in the 1st quarter, which is weighing on any gains in Mortgage Bonds.

Though banks have been reporting profits, the outlook for the financial sector is still tough given the continued presence of toxic assets and the poor economy hanging overhead.  The banking industry is still a ways from any real recovery, and much of the positive news can be attributed to the easing of mark to market accounting rules.

The Consumer Sentiment Index repored its third straight gain with a reading of 61.90.  This is also helping to keep a lid on any gains in the bond market this morning.  With the 25-Day moving average now overhead, locking is most likely your best route.  Should anything change, we will keep you posted.

Mortgage Market Update 04/15/2009

April 15, 2009

Mortgage Bonds finally pushed above the 25-Day Moving Average yesterday, but they have now dropped down to test this layer this morning.  It will be important to see if this level can hold, as stocks and bonds have been trading in large swings today.

The Consumer Price Index for March came in slightly lower than expected with a reading of -0.1% versus 0.1%.  This brought the year over year to its worst level since 1955.  On the bright side, the Core CPI, which strips out volatile food and energy prices, came in better than expectations, with a reading of .2%.  Also, the Empire State Manufacturing Index was reported much better than expected, coming in at -14.0 as opposed to -35.0 Inflation remains tame, but this is a sign of potential progress towards recovery, which is weighing on any further gains in Mortgage Backed Securities.

For now we are floating to see if mortgage bonds can hold above the 25-Day Moving Average.  Should bonds drop below this level, we will let you know to lock.

Mortgage Market Update 04/14/2009

April 14, 2009

Mortgage Backed Securities closed slightly up yesterday, and so far this morning they have continued trading in the positive.  Unfortunately, mortgage bonds have been unable to break above the current layer of resistance at the 24-Day Moving Average which has successfully kept a lid on any significant gains.

The Producer Price Index came in worse than expected with a reading of -1.2%.  Also, Retail Sales dropped by 1.1% which was against analysts’ expectations of a slight increase.  It will be interesting to see if this trend continues in tomorrow’s release of the Consumer Price Index, as these results suggest very tame inflation.

With the heavy ceiling overhead at the 25-Day Moving Average holding mortgage bonds down, it will take a major push to get back above this pricing level.  For now we are locking, but should mortgage backed securities make a solid  run higher, then we will let you know.

Mortgage Market Update 04/13/2009

April 13, 2009

Mortgage Backed Securities are up slightly so far today after dropping below the 25-Day Moving average that had acted as a floor of support up until Thursday’s trading.  This is important, as that layer has now become a formidable ceiling if resistance that has thus far kept mortgage bonds from pushing any higher.  There are no major economic news set for release today, so bond trading will take direction from the stock market.

With the recent modification in the mark-to-market accounting rules, the financial sector is finally showing some signs of health.  This is helping stocks, but obviously at the expense of mortgage backed securities.  Currently the FNMA 4.5% Mortgage Bond is trading up 22 bps.  Some of this is a result of some buy backs from last week’s losses though.  For now, it might be prudent to lock to protect your current pricing.  If anything changes, we will let you know.

Mortgage Market Update 04/02/2009

April 2, 2009

Mortgage Backed Securities are considerably down this morning on the heals of the Financial Accounting Standards Board’s decision to relax aspects of the Mark to Market accounting practice that has been blamed as one of the causes of this current economic downturn.  This will allow bank and financial institutions to value assets based upon what they would sell for in an orderly sale rather than a distressed sale as previously required.  The stock market has thus far reacted very favorably to this news at the expense of mortgage bonds and Treasuries.

Initial jobless claims came in at their worst level sine 1982 rising to 669,000 from last week’s 657,000.  In addition, those continuing to receive benefits hit a record high for the 1oth straight week.  This leaves little doubt that the labor market continues to struggle.   Not surprisingly, these job losses have lead to a dramatic increase in mortgage delinquencies with consumers struggling to make their payments.  The fourth quarter delinquency rate was the highest it has been since the American Banker Association began tracking the data in 1974! 

Tomorrow the Jobs Report will be released.  Given the dismal numbers from yesterday’s ADP report and the ongoing struggles with unemployment claims, tomorrow’s report is not expected to be very pretty.  Even still, we are recommending a locking stance to take advantage of current pricing.  Should the bond market turn around, we will let you know.

Mortgage Market Update 03/31/2009

March 31, 2009

The mortgage bond market is mostly flat this morning, after gaining 18 bps yesterday.  Today is the last day of the 4th quarter, so many traders are sitting on the sidelines until tomorrow. 

Consumer Confidence was reported this morning slightly worse than expected at 26.0 versus 28.0, though this is an improvement from last month’s numbers.  In addition, the Chicago Purchasing Managers Index (PMI) came in low at 31.4 versus estimates of 34.4.  This is the worst number is over 29 years, and it illustrates just how much the manufacturing sector is suffering. 

Mortgage Backed Securities are currently up 3 bp from yesterday’s close.  With little else in economic news today, we are carefully floating for now.  If anything changes, we will send out an alert.

Mortgage Market Update 03/30/2009

March 30, 2009

Mortgage Backed Securities are up in the positive again today, though they are off earlier highs from the opening.  Much of this morning’s gains come as the stock market struggles with  news on the auto front.  In addition, the bond market is getting a premature boost as the Fed plans to purchase longer term Treasuries later today.

The Obama Administration’s report on GM and Chrysler this morning was quite clear.  Neither company has taken the necessary steps to warrant further bailout assistance without sweeping changes.  In addition, Obama raised the real possibility of using a controlled bankruptcy “in a quick and surgical way” to help these companies “emerge stronger”.   It appears that the administration has forced the departure of GM’s CEO Rick Wagoner by threatening to pull future bailout funds should he fail to step down. 

The mortgage bond market just fell to their lowest level of the day.  For now, we are holding on to see if the market can push back into the positive.  Though you might float for now, be mindful that we are close to pricing highs from December and January.  It might be best to take a conservative stance and lock if your lenders are providing the pricing.

Mortgage Market Update 03/25/2009

March 25, 2009

Mortgage Backed Securities have been playing on a layer of support this morning at $101.56.  Bonds had broken below this floor earlier, but have since been able to regain footing slightly above that level. 

Durable Goods Orders climbed to their highest level in six months with a reading of 3.4%, which was better than expectations.  This is a good sign for the economy, though the report is quite volatile.  It does come off the heals of two straight days of positive economic news, and it appears that with the credit markets starting untangle, this number could continue to show positive increases. 

Also coming in on a positive note was today’s release of New Home Sales, which were reported at 337,000 versus expectations of 300,000.  In addition, the inventory of unsold homes dropped slightly to a 12.2 month supply.  These are very encouraging reports that might signal the beginning to the bottoming of the housing market.

The Mortgage Banker Association released its Weekly Mortgage Application Survey for last week indicating applications rose 32.2% from the week prior.  This is no doubt a result of the drop in rates from the pricing high reached in the bond market on Wednesday.  Unfortunately, much of that gain has been lost in the last four days of trading.  In addition, lenders who were already backed up in loan submissions are now receiving even more.  This has kept a lid on rates, as lenders have been unwilling to pass on much of the gains to borrowers in an attempt to slow down loan volume.

The FNMA 4.5% bond is currently down slightly by -3.0 bps, but they have managed to stay above the nearest floor of support.  Make sure to pay attention to this layer, as the next support level is a full 60 bps below.  For now we are cautiously floating to see if this floor can maintain.  Of course, it might be most prudent to lock even on the minimal gains we have received.

Mortgage Market Update 03/24/2009

March 24, 2009

What a day for the stock market yesterday, and surprisingly mortgage backed securities also saw some positive movement.  This came off the heals of the Treasury’s announcement of their “Public-Private” program to get toxic and illiquid debts off of struggling financial institution’s books.  This is yet another attempt to get credit flowing steadily again, though we will see how confident the private sector is in our government after this AIG bonus fiasco.  Ben Bernanke and Timothy Geithner are actually speaking currently to the House Financial Services Committee regarding this matter.

There are no major economic reports to be released today, though there is a large Treasury auction of 2-Year Notes later this morning.  This could weigh on bond prices, but for now we will see if we can maintain above our current level of support at $101.71.

Mortgage Market Update 03/23/2009

March 23, 2009

Stocks are soaring this morning in reaction to the Treasury’s announcement of a program designed to remove toxic assets from banks and financial institutions.  This new plan will encourage private investors to participate in the program by offering them low interest rate loans through the FDIC and the Federal Reserve that are to be used for the purchases, and thus the government will mitigate some of the risk to those investors should the value of those assets continue to drop.

Existing Home Sales came in much better than expected, mostly the result of great deals in the foreclosure and short sale markets, as well as by the low interest rate environment we have been experiencing since the beginning of the year.  The Inventory of Unsold Homes, though, came in slightly higher than the previous month, rising to a 9.7 month supply.  With all of the other announcements and releases this morning, these reports were largely ignored by traders.

Mortgage Backed Securities are pretty much flat today, after coming off the pricing high established on Wednesday with declines both Thursday and Friday.  Currently, the FNMA 4.5% bond is trading slightly lower from earlier highs this morning, but are a tad bit higher than Friday’s close.  For now we are floating to see is we can gain back some of the losses from Thursday and Friday.  Should anything change, we will let you know.

Mortgage Market Update 03/20/2009

March 20, 2009

Just as expected, Mortgage Backed Securities have fallen from the pricing high reached Wednesday after the release of the FMOC Policy Statement.  The selloff was precipitated by inflationary worries due to these aggressive moves from the Feds and the government,  to falling dollar, and to rising oil and energy costs.  This has no doubt weighed on the bond markets recent gains.

There were no major economic reports released today, and for the most part both the bond and the stock markets have remained relatively flat.  Ben Bernanke is scheduled to speak further about the financial crisis later this morning  at the Independent Community Bankers of America convention in Phoenix.  This could have potential market moving comments, though it appears thus far this morning that investors have decided head out for an early weekend. 

Currently the FNMA 4.5% Mortgage Bond is trading down -3.1 bps.  After a nice shot higher Wednesday, protecting your gains is probably the best advice at this point.  Should anything change, we will let you know.

Mortgage Market Update 03/18/2009

March 19, 2009

What a difference a day can make!  Mortgage Backed Securities (MBS) jumped to their highest level in 3 months yesterday on the heals of the release of the Fed’s Monetary Policy Statement.  The Fed announced that they plan to extend their MBS purchase program, while at the same time expanding the available funds to $750 Billion.  In addition, they also plan to buy up $300 Billion in Treasury Notes in an attempt to keep the spread between Treasuries and Mortgage Backed Securities from increasing, as they can have a very negative effect on the mortgage bond market.  Though pricing has become better, rates are still only slightly lower than they were prior to yesterday’s run. 

Here is the catch.  The lending environment has not changed since the last pricing peak.  If you remember, lenders were not able and/or willing to pass these gains on to the consumer through rates.  Banks are still not staffed to accommodate the large influx of loans that occur when we see these spikes in pricing.  In addition, many lenders are suffering from cuts in their warehouse lines, which has effected their abilities to fund loans.  Thus in an attempt to slow down loan submissions, lenders will hold off on providing the better rates.  Also, if you look at the coupons that the Fed has been buying and plans to continue to buy you will see that their intent is to keep a lid on rates, not necessarily drive them lower.  I know the media is spinning this differently, but that just shows how out of touch they are with the actual markets.  I even heard on “reporter” say last night that the Feds dropped mortgage rates to 0.0%!!!  I believe they meant short term rates, which have little to do with the long term mortgage rates. 

Many people might be tempted to remain on a fence to see if rates get any better.  This is not only unwise, but is also flat out foolish.  Rates are at historic lows no matter what, and these windows do not last very long.  Eventually, the stock market will rally back, and there is no doubt that rates will increase dramatically (and fast).  Currently, Mortgage backed Securities are flat on the day.  Though you can safely float for now, it might be prudent to lock in your loans to protect the gains we received from yesterday’s rally in the bond market.

Mortgage Market Update 03/18/2009

March 18, 2009

Mortgage Backed Securities are up slightly on the day as traders await the Fed’s policy statement that will be released at 12:15pm MST.  Though there is no room for any further drops in short term and discount rates, their comments on the economy and its recovery will no doubt move investor sentiment. 

The Consumer Price Index came in this morning a tad bit better than expected, with a reading of .4% versus .3%.  The Core CPI, which strips out food and energy, indicated a reading of .2%.  Though this is better than expected, it still signals a tame inflation reading, and the bond market had little reaction to the news.

Mortgage Bonds have just ticked above the 50-Day Moving average, which has successfully held back bond pricing for the better part of the last two weeks.  If the market can sustain these gains, then we could see a potential reprice for the better.  Of course, everything can quickly change depending upon the FMOC statements.  There has been mention that the Feds might announce an extension to their Mortgage Backed Securities purchase program that ends in June, though it appears the 30 Year rate will bottom out at 5% rather than the 4.5% that we are all hearing about in the media.  We will keep you posted of any changes.

Mortgage Market Update 03/17/2009

March 17, 2009

Sideways trading continues in the bond market today, with mortgage backed securities slightly up on the day at +10 bps.    Bonds have tested the floor of support at the 25-Day Moving Average several times in the last week, and it has proven to be pretty a pretty solid layer.  Conversely, every time bonds have tried to break over the 50-Day Moving Average they have been forced back down creating this sideways trading pattern.

Housing Starts and Building Permits both came in higher than expected today, which caught most investors by surprise.  It will be interesting to see if this positive trend continues, and though this is typically unfriendly news for the bond market, it can signal  the beginning chances of economic recovery.  Also reported this morning was the Producer Price index which came in lower than expected at .1% versus estimates of .4%.  This leaves the Core PPI at .2%, slightly higher but still a very tame inflation reading.

The FMOC starts their policy meeting today, which will continue again tomorrow.  Statements from these meetings typically have heavy influentail effects on the markets, so we will be waiting to see just what is disclosed.  For now we are floating to see if bonds can make a break from the current trading pattern.  Listen carefully tomorrow when the Fed releases their policy statement at 12:15pm MST.  This will no doubt have dramatic effects trading.

Mortgage Market Update 03/16/2009

March 16, 2009

Mortgage Backed Securities are all over the board once again, already testing both the ceiling of resistance at the 50-Day Moving Average and the floor of support at the 25-Day Moving Average this morning.  This is the same window that bonds traded in for most of last weeke as well, and it will take some solid movement in either direction to break through one of these layers.  Even still, pricing and rates are the best they have been in almost a month.  So far, rates sheets seem to be holding on to those gains.

Stocks have been able to sustain last weeks gains on positive financials from Barclays Bank.  In addition, Ben Bernanke in an unprecedented public interview on 60 Minutes stated that he felt confident about the long term economic piture, and most importantly, he felt that we should start seeing the end to this current recession by the end of this year.  Ben was very emphatic that if the Reserve did not take the aggressive actions they did starting last year, then the situation would be much more grim then it is presently.

There were few market moving economic reports this morning.  The New York State Manufacturing Index came in at its worst level on record with a reading of -38.2 versus the expected -32.0.  Also, Capacity Utilization and Industrial Production both came in very close to expected.  Traders have all but ignored these reports, as they await more news on the hearings regarding Mark to Market accounting and on the circus invloving AIG and their executive bonus pay. 

With the bond market having rallied to levels not seen in over a month, it might be prudent to lock on the gains we have received.  If you have a tough stomach though, you might want to float to see if mortgage backed securities can break through the layer of resisitance overhead.  There are several factors that do create concern about the long term rate picture.  First, eventually the goverment will stop their program for purchasing mortgage bonds.  In addition, there will be further Treasury Auctions to pay for all of the government expenses which will weigh on mortgage backed securities.  Finally, the tension between the US and China over trade has been building.  With China being the single largest holder of US Debt, should they start to sell some the Treasuries that they own and also back off continued purchases of long term debts, our mortgage backed securities market could take a dramatic hit.  This is definately something to watch and be prepared for in case the bond market takes a sudden  swing in the wrong direction.  We will keep you informed of any developments.

Mortgage Market Update 03/06/2009

March 6, 2009

As predicted the Jobs Report came in close to expectation with a drop of -651,000.  Also, there was a large downward revision to the past 2 months with an additional 161,000 losses.  This marks the sharpest decline since 1949.  Even more troubling, the unemployment rate climbed to 8.1% which was slightly worse than expectations of 7.9%.  With the economy still tanking, these numbers should not be too much of a surprise, and traders thus far have acted accordingly.

Mortgage Backed Securities initially dropped this morning while stocks opened higher.  Since then though, they both have reversed directions, with mortgage bonds jumping up into positive territory before being held down by a very strong layer of resistance at the 50-Day Moving Average.  Bonds have tested this level several times this morning, and each time they have been driven back from that ceiling even with the weakness in the job market and the economy. 

After a series of gains over the past week and with the 50-Day Moving Average overhead, we are recommending locking on the gains in pricing we have received.  Of course, we could see a push higher, but the potential for losses at this point are much greater than the potential for gains.  Should anything change, we will keep you posted.

Mortgage Market Update 03/05/2009

March 5, 2009

Mortgage Backed Securities are continuing on a nice run higher this morning, following four days of slight gains.  Stocks are falling again after many downgrades to financial stocks and in anticipation of a dismal Jobs Report tomorrow.

Initial Jobless Claims were reported a touch better than expected with a decrease of 639,000 vs. 650,000, though the four week moving average climbed to its highest level in 26 years.  In related news, Productivity dropped dramatically for its first decrease in a year to a reading of 0.4% annual rate.  In addition, Labor Costs rose 5.7%. 

Tomorrow’s Jobs Report is expected to be very poor, and there is little doubt that there will be further downward revisions to previous numbers.  That being said, we are taking a floating stance this morning as bonds have pierced just above the heavy layer of resistance at the 25-day moving average.  Should this trend continue, we could see pricing get significantly better.

Mortgage Market Update 03/04/2009

March 4, 2009

Mortgage Backed Securities have opened down -34 bps after testing and closing right at the 25-day moving average that has acted as a very solid ceiling of resistance sine mid February.  Unless bonds can break above this level, mortgage rates will have trouble getting any better.  The ADP Job Report came in far worse than expected at 697,000 job losses versus estimates of 630,000.  In addition, there was a downward revision to last months numbers, adding 90,000 more losses to the count.  Though this report is often times far from accurate, it still does not paint a pretty picture for Friday’s official Jobs Report.  Surprisingly, this otherwise bond friendly news was mostly ignored by traders as they bargain hunt in the stock market.

The ISM Service Index was just released, showing the service sectors shrinking for the 5th straight month.  The reading came in at 41.6 as opposed to the predicted 42.9.  A reading below 50 indicates the economy is in contraction, which is not really unexpected given the dramatic downturn in the economy. 

President Obama’s administration released The Housing Rescue Plan and  the “Making Home Affordable” initiative.  These programs are meant to help keep struggling homeowners in their properties by lowering their monthly payments through interest rate, loan term, or both.  In some cases, borrowers might be qualified to have a reduction in their principal balance as well.  In addition, it is expected that the “cram-down” plan to allow bankruptcy judges to force lenders to reduce interest rates and/or to lower the principal mortgage balance for the very troubled homeowner.  We will let you know more, once we have better details of the plans.

The Fed’s Beige Book will be released at 2pm EST today.  This report informs FOMC members of changes in the economy since their past meeting, and it helps to guide their interest rate policy.  Though short term interest rates are expected to remain untouched through 2009, the wording in this report could sway investor sentiment.

With the stock market rallying and mortgage backed securities at the top of current trading channels, we are in a neutral to locking stance to protect the gains that we have seen in the last couple of days.  Should bonds rally higher and break above the 25 day moving average convincingly, then pricing could recover.  We will keep you undated on any major changes.