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Tuesday, August 25, 2015

Mortgage Bond Market Analysis - WHAT HAPPENED?

The last three days have been crazy even if the benchmark bond hasn't moved with wild swings.  Let's start with yesterday.  At one point, the Dow Jones Industrial Average was down 1000 points (that's HUGE) and it fought back to being down only about 100 points and closed the day down 588 points.  These are some very wild swings.  The FNMA benchmark bond was up 50+ basis points in early morning trading but capitulated throughout the day (I received about 7 trend reversal alerts) and closed up 12 basis points closing at 104.20, just above the 2nd level of resistance (104.12). One would expect the benchmark bond to be up more than that with such a strong down day - in fact, one might expect an up day of 75 basis points or more but it didn't happen.  The only thing I can think of is that the power shifted from the bond market to the Mets as they hit a team record 8 home runs against the Phillies yesterday, led by David Wright who hit a home run in his first at bat after being on the disabled list for 133 days.  What a Monday.

Last Thursday in my blog I recommended floating with caution and Friday proved to be another good day for interest rates as the FNMA bond closed up 17 basis points after a 20 basis point up day on Thursday.  In all, the benchmark bond has added 75 basis points since Wednesday's open which has been a bit of a surprise based on the fact that some members of the FOMC really want to raise the Fed Funds rate but the tame inflation numbers and mixed economic data don't justify it.

Today is bringing us more craziness with the benchmark bond only down 10 basis points as of this writing which is amazing (another Mets reference) considering the fact that the DJIA is up 303 - well of the morning high of up 600 in morning futures trading.  There bond is trying to fight through strong resistance with the 2nd level of resistance at 104.12 (it has dropped below this level this morning) and the 200 day moving average also at roughly the same level.  Additionally, the RSI (Relative Strength Index) is approaching the overbought level.  I would be very cautious at this point about floating any more.  There is  lot of volatility in all of the markets with the VIX (Volatility index) breaking the 50 mark for a bit yesterday.  Between the volatility and the resistance, I would lock to take advantage of the recent gains and protect yourself or your clients from a sell off which would lead to higher interest rates.

On the economic data front, the Consumer Confidence Index came in at an amazing (yet another Mets reference) 101.5 vs. expectations of 92.6 (this will have a negative impact on pricing) and the Case-Shiller home price index came in at 5 vs. estimates of 5.1 (not a factor in pricing) and New Home Sales came in at a slightly disappointing 507 vs. estimates of 511.  The fact that the Mets have a winning record and are in 1st place in their division so late in the season may be a major contributor to all of the wild swings in the market.  Perhaps the beginning of college football season next week can help restore (some) order.  In the meantime, please feel free to contact me (801-853-8720, 702-812-1214 or if I can help with anything mortgage-related.  Make it a great day.

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