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Tuesday, August 11, 2015

Mortgage Bond Market Analysis - 2nd Chance Tuesday

Happy Tuesday morning which also happens to be 2nd Chance Tuesday.  Last Tuesday the benchmark bond was down 50 basis points, mostly on comments by one of the Fed Presidents that they want to start increasing the Fed Funds Rate sooner rather than later.  Wednesday started off down about 28 basis points or so but finished down only about 5 basis points.  The data we got from Wednesday through Friday really didn't provide support for the Fed president's comments - not that they couldn't still decide to act anyway.  Through the rest of last week, the market rebounded to finish down only slightly (I think 2 basis points) for the week.

We had no data yesterday and ended down 24 basis points mostly do to the equity markets having a strong day.  This Tuesday is definitely a different one from last week as we have some good data that WOULD support the Fed's desire (not sure why they just feel the need to raise the rate - it should be based on actual data but they are quasi-government so???) to raise rates and what happens?  If you guessed that investors / traders are buying bonds and pushing interest rates lower you would be right but that's not the way it's supposed to work.

Unit Labor Costs came in at .5 vs. expectations of .1 which is much stronger than expected but not nearly as strong as the previous reading of 6.7.  Non-farm Productivity came in at 1.3 vs. estimates of 1.4 and much better than the previous reading of -3.1.  This is a good thing because the more productive we are, the more efficient we are which means our cost per unit can be managed and kept low which helps explain the first statistic above.  The last big economic data point today is Wholesale Inventories which came in at .9 vs. expectations of .4 and previous of .8.  This shows growth which gives the Fed more ammunition to raise rates.  But here's why traders are buying instead of selling:  China.  This morning, the People's Bank of China (PBOC) devalued their currency by the most on record.  In an effort to jump-start their economy, they did this so that the price of their exports would be cheaper which means people in other countries (namely us / US) would buy more of their products because we can buy more for less.

On the technical side of things, the FNMA benchmark bond is as high as it's been since June 2nd.  It is up 52 basis points on the day at 104.07.  The 2nd level of resistance is 103.92 (which also happens to be the 100 day moving average).  The fact that these two things coincide makes that resistance strong so to have broken through means we might see some more upside.  The other side of that theory is the 200 day moving average is only a few basis points from where we are at now.  It's not likely that we will see big gains from here unless the data is week and we keep getting help from China and / or Greece or some other surprise country.  At this price, rates are fantastic and I would not be greedy.  I'd take my proverbial chips off the table and lock.  If you decide to roll the dice, as always, keep a watchful eye on the market so that you can act fast.  If you use me as your loan officer, you know that I do that already and would be able to act quickly for you.  While we do have great rates, getting a great rate is very much about when you lock and locking now is a good thing.  Feel free to call me at 702-812-1214 if I can help with anything mortgage-related.  Make it a great day.

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