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Thursday, August 27, 2015

Mortgage Bond Market Analysis - It would be crazy if it wasn't crazy

It's Jobless Claims Thursday but that's not really the focus.  There's really a lot going on so here's the nuts and bolts.  The FNMA benchmark bond finished down the last two days, 17 basis points and 33 basis points respectively; this translates into about a .125% higher interest rate.  From a technical perspective, at it's current price of 103.77 the benchmark bond is 12 basis points above the 1st level of resistance (which is acting more like a support level currently) of 103.65 and just below the 2nd level of resistance which is 103.79.  This resistance level is strong because it is both the 10 and 100 day moving averages while the support level is the 25 day moving average.  The RSI (Relative Strength Index) is quite close to being overbought but I'm thinking this is pretty much a non-factor with so much else that's going on.  My guess is that bonds will trade in a very narrow range today as traders await comments from the Fed's Jackson Hole Symposium which is going on today and tomorrow.

From a broader perspective, the stock market had a huge rebound yesterday after 6 straight losing sessions with the Dow (DJIA) closing up 611 points.  This was certainly a factor in the sell-off of bonds yesterday as the standard is that stocks go up when traders sell bonds and buy stocks - it doesn't always happen that way but it's pretty common (as is the reverse).  I think the sell-off in the bond markets were tempered a bit by comments from Larry Summers (former Treasury Secretary) who said that there is no good reason for the Fed to raise the Fed Funds Rate until next year unless one of three things happen:  1) new policies are implemented which encourages large public and private investments, 2) inflation sharply accelerates, or 3) euphoria in the markets break out.  It doesn't look like #1 is going to happen.  One big up day in the stock market after 6 large down days certainly doesn't qualify for euphoria in the market.  However, while inflation readings have been tame, this morning's 2nd iteration of 2nd quarter GDP came in at 3.7%, much hotter than the expected 3.2% and far above the initial reading of 2.3%.  This is negative for bonds and would normally mean a sell-off but like I said - it's a crazy market.  Since it is Jobless Claims Thursday I guess I better mention them.  Initial Claims came in at 271K, just below the estimates of 272K.  The 4-week moving average inched up from 271.5K to 272.5K.  Pending Home Sales were lower than expected at .5 vs. expectations of 1.0 but far better than the previous of -1.7.

I recommended locking in my post on Tuesday and reiterated that stance in yesterday's post.  With the new GDP numbers, we may hear a stronger call from the Fed to raise rates sooner rather than later and there comments tomorrow have the potential to impact bonds in a big way to the down side which would mean higher rates.  I'd be defensive and lock if you / your clients have not locked already.  As always, I would love to show you the great service I provide to all my clients by helping your next client.  There are a lot of things I do to add value to the clients as well as my Realtor partners and I would love to discuss these things with you unless you don't have any capacity to take on new business but I have yet to meet anyone who has told me they are maxed out  - if you are, congratulations.  I'd love to get your thoughts on the market and anything else real estate oriented either in the comments section or in an email to me -  Make it a great day.

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