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Friday, August 14, 2015

Mortgage Bond Market Analysis - TGIF

It's Friday and we have four more data points to chew on - in addition to whatever grub you might eat in celebration of a weekend (and the first bit of football, preseason as it may be).  The Producer Price Index (PPI) came in higher than expected at .3 vs. .1 - while percentages tell you that it's 300% more than expectations, it's still only .2 higher than expectations and it's not inflationary so take it for what it's worth.  As the saying goes:  "There's lies, damn lies and there's statistics."  Industrial Production came in at .6 vs. .3 which shows some economic strength but nothing fantabulous (I know, that's not really a word, but it's my post and I like it).  Capacity Utilization came in at 78, just as expected.  At this level, there is a lot of headroom for more production.  Finally, the Michigan Consumer Sentiment Index came in low with a reading of 92.6 vs. expectations of 93.9.  While this is a bit of a miss, the sentiment is still strong - it's like when you are in the gym and work out so hard one day and push your max weights on the bench press and then with one day of rest you go back and while you're strong, you can't do what you did two days ago.  It's not like consumers have lost all confidence in the economy and the traders have been acting on that the later part of this week.

On Wednesday morning I noted that Tuesday we hit the 100 day moving average and that that was a pretty strong resistance level since it also coincided with the 2nd level of resistance.  Additionally, I noted that the 200 day moving average wasn't far above the 100 day level.  I recommended locking ahead of the data that was going to be released on Thursday and today.  Since that Wednesday morning recommendation, the FNMA benchmark bond sold off 26 basis points on Wednesday and 24 basis points yesterday - that's 50 basis points and on a $200,000 loan, that $1,000 in extra fees for a borrower.  This morning traders are continuing the selling but are coming up against a decently strong level of support with the 25 day moving average just below the 1st support line (103.33) and these two are trying hard to not allow the sell-off to break through any lower.  The RSI (Relative Strength Indicator) is moving closer to the oversold threshold which will also provide an impetus for traders to consider buying instead of selling.  That said, the FNMA benchmark bond is currently down 7 basis points at 103.41, 12 basis points above the morning low and 17 basis points off the high.

If you are wondering about locking, that's extra trick since if something happens to encourage more sell-off and the bond breaks through the aforementioned support levels, the 2nd level of support is 43 basis points below the 1st so there could be a bit of a free-fall.  However, there is relatively little data next week with only the NY Empire Manufacturing Index on Monday and nothing on Tuesday.  We get the CPI (Consumer Price Index) on Wednesday along with the FOMC minutes and Thursday we get Jobless Claims and the Phili Fed Manufacturing Survey.  It might pay to float at this point but there is a gamble in doing that as I mentioned above.  The 10 year Treasury, which is kind of a barometer of bias, is at 2.19% yield right now and that is in a good place - if you see that creep up to the 2.26% or higher - especially if it breaks back through 2.31%, then rates are going to take a hit (and probably already would have suffered a bit by then).  If I had a loan closing 15 days or more out, I would probably roll the dice and see what Monday brings.  I would also keep a close eye on the market and be ready to lock in a moments notice.  I can be the one to keep that close eye on it for you or your clients - feel free to contact me if I can help you with a mortgage (702-812-1214 or   Make it a great day and a better weekend.

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