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Monday, June 8, 2015

Mortgage Bond Market Analysis - What the heck just happened?

It's a Monday and in this case, that's a good thing.  Last week was a really downer, literally, for the benchmark bonds which means rates went up.  Between world events and some positive economic data, the FNMA benchmark bond sold off 167 basis points which means that rates went up about .375%.  The Labor Market Conditions Index came in at 1.3 vs. the expected 2.3 but this isn't a big deal as far as bond pricing is concerned.  There will be some more date released throughout the week that can have more of an impact on mortgage bonds.  The good news is that the benchmark bond is currently oversold so we could see some buying on that factor alone.  Here's a look at the chart:

We haven't closed that low since October 6th of last year and we were pretty close to that point on November 12th.  We are almost 7 months removed from November 12th and still seeing very mixed results in the economy.  I don't think we will see a continual rapid rise in rates.  There is too much ambiguity in the market.  Experts are still calling for a correction in the stock market of 10-15% which will impact bonds, most likely in a positive way since the money typically flows out of stocks into the safe haven of bonds in scenarios like a market correction.

Additionally, a Fed rate hike of any magnitude, and I don't know of any experts advocating rate hikes soon or that are big, will probably help interest rates as well as it will make investors in the stock market a bit uneasy which means more money will likely flow to the safe haven of bonds again.  At this time, I would float with caution.  We've had a big sell-off that doesn't appear likely to continue at this point and we may see some buying in the bond market as investors see this as an opportunity to buy bonds at a good price.  Be very judicious about watching the bond movement as they dictate rates.  Call me if I can help with anything mortgage related:  702-812-1214.

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