Search This Blog

Tuesday, March 31, 2015

Mortgage Bond Market Analysis - Ignorance is Bliss edition

Ignorance can be bliss but there are also self-fulfilling prophecies and in this case, one may lead to the other.  On the ignorance is bliss side of things, the Chicago PMI (Purchasing Manager's Index) came in far below expectations (52) at 46.3; a reading below 50 means the economy is retracting and this is the 2nd reading in a row below 50 - not good news for our recovery especially with all of the recent mixed data.

On the self-fulfilling prophecy side, consumers drive the economy and the consumer confidence reading smashed expectations (96.4) with a reading of 101.3.  Consumers may not know how dismal things are in the economy but if they believe things are good and they start spending money on everything manufacturers have to offer, the Chicago PMI will soon start reading above 50 again.  How cool is this?  Let's just hope that consumers act on their confidence by spending because that hasn't been happening with the some of the mixed data I referred to being high consumer confidence numbers not showing up in the various data points regarding consumer spending.  The confidence has been derived more from the good jobs numbers but if they don't spend, then jobs won't be around and the Chicago PMI won't be reading above 50 anytime soon.  What a tangled web we have. 

For now, traders are buying bonds on the weak Chicago PMI numbers and pushing the FNMA benchmark bond higher for a 3rd day in a row.  It is currently up 15 basis points (8 basis points off the high for the day) after a 19 basis point increase on Friday and a 15 basis point rise on Thursday.  The RSI is just above the mid-point so we don't have to worry about being overbought and traders starting to sell off.  The 2nd level of resistance (102.27) is proving to be strong as the bond tested it this morning and was pushed back.  Closing above the resistance level with such a strong consumer confidence reading would be good and could lead to some follow through in tomorrow's trading. 

I would float with caution - always be ready to lock if the market turns against you so that you can try to beat a re-price - if you have a loan that is closing in 15-30 days out.  If your loan is 15 days or sooner, I would be very happy locking in the last 3 days of gains in the mortgage bond market; rates are great right now.  Feel free to contact me for a copy of my free report:  How to Avoid the Most Common and Costly Mistakes Made When Getting a Mortgage.  If I can help with anything mortgage-related, please call me at 702-812-1214.  Make it a great day.

No comments: