Search This Blog

Wednesday, August 26, 2015

Mortgage Bond Market Analysis - Did you lock? Craziness Runs Rampant

Happy Hump Day.  The financial markets continue to defy odds and normalcy.  Yesterday the stock market opened strong, though well off pre-market / futures high and slowly tailed off until the end of the day when it plummeted and finished the day down just over 200 points.  While the usual correlation between the stock and bond markets hasn't been as strong recently, yesterday the FNMA benchmark bond definitely benefited from the afternoon sell-off in the equities market by climbing off its lows for the day and closing down only 17 basis points vs. the 51 it was down.

This morning, the stock market opened higher again but the DJIA is currently 100+ points off its morning high which is helping the FNMA bond once again.  The benchmark bond was down as many as 35 basis points but with a bit of a sell-off in stocks, it has recovered a bit and is now only down 12 basis points.  The 103.75 basis point resistance level is acting more like a support level at this point.  Also providing support is the 100 day moving average.

On the economic data front, Durable Goods Orders came in at 2.0, well above expectations of -.8.  Durable Goods ex-Transportation came in at .6 vs. expectations of .4 - this is bad for interest rates as it SHOULD impact bonds negatively.  One thing that is helping bonds right now is comments from the Fed's William Dudley who said that a September rate hike looks "less compelling."

So where do we go from here?  That's a tricky question (kind of like "Will the Mets make the playoffs and how far will they go if they do?" - if you haven't figured it out yet, I'm a Mets fan, though baseball is my 4th favorite sport behind basketball, football and hockey - go Rangers).  There are some conflicting things that are muddying the waters.  First of all the benchmark bond is still very close to overbought according to the RSI which is a technical indicator that investors may have a inclination to sell, pushing rates higher.  Conversely, there is pretty strong support with the 100 day moving average and the first resistance level just below the current price as mentioned previously.  To make the situation even more difficult to try to figure out what direction the bond is likely to go is the fact that the stock market has been in a free fall with very little benefit for mortgage bonds and the volatility is very high.  China is adding to the confusion and...drum roll please...we have Jobless Claims Thursday tomorrow in addition to GDP and Pending Home Sales followed on Friday by Personal Income, Personal Consumption Expenditures, Personal Spending and Michigan's Consumer Sentiment Index.  But wait, there's more.  If you act now, I will throw in comments from the Fed's Jackson Hole Symposium (which happens every year at this time) which will likely have the biggest impact on mortgage bonds / interest rates.

So what in the heck should you do?  As you can see, there are some compelling reasons to lock as well as to float.  There would be no harm in floating as rates are great and you would protect yourself from what could be a big sell off depending on how tomorrow and Friday goes.  If it were me (I'm very conservative when it comes to things like this) I would lock before the comments from Jackson Hole are released at the very least.  If you are going to float, I would do so with extreme caution - make sure you watch the market very closely and be ready to lock quickly.  As always, please feel free to call me if I can help with anything mortgage related.  I would love to help your next client who needs a mortgage.  You can contact me at 801-853-8720, 702-812-1214 or  Make it a great day.

No comments: