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Wednesday, September 16, 2015

Mortgage Bond Market Analysis - Hump Day Edition

It's that day of the week again - the beloved Hump Day.  For those of you who want a quick smile or just can't get enough of the camel, enjoy.

Now for the bad news.  Yesterday, the FNMA benchmark bond closed down 55 basis points finishing the day at 103.17 - I did recommend locking ahead of this morning's CPI data and especially ahead of the release of the Fed's interest rate decision tomorrow.  I think the traders were feeling antsy about what the Fed might do and they took some chips off the table.  However, the CPI headline and core data both came in as expected at -.1% and .1% respectively and this data, like yesterday's and other recent data, do not support a Fed rate hike.  If the Fed decides not to raise the Fed Funds Rate then yesterday's sell-off will likely be unwarranted and with the RSI hovering right around the oversold mark, it's very possible that we could see some buying in the bond markets which would help rates.  Look for a lot of volatility for the 20-30 minutes after the release of the decision (it will be released tomorrow at around 2:00 - 2:15 EDT).  After traders have had a chance to digest the information then you can expect some stability in whatever direction the market may move.

The benchmark bond is currently up 3 basis points at 103.2 - 3 basis points above the new 1st level of support of 103.17.  Tomorrow is Jobless Claims Thursday and expectations are for 275K, just like last week.  We also get Housing Starts, which are expected to be 1160K vs. previous of 1206K while Building Permits are expected to be up to 1159K vs. the previous reading of 1119K.  In all, the data doesn't support a rate hike but that doesn't mean we won't get one.

At this juncture, I'm not sure it would be prudent to lock (listen to that sentence in your head with George H. Bush saying it - a little fun ahead of the presidential debate tonight).  With the 55 basis point sell-off yesterday and a decent likelihood of the Fed holding steady, I would probably take the gamble and float.  I doubt tomorrow morning's data will have much impact since the focus will be squarely on the Fed interest rate decision.  If they decide to raise the Fed Funds rate, the sell-off may not be too bad since we had a big one yesterday but if they hold steady, we could definitely see a bit of a recovery.  That said, if you do float, be ready to lock quickly in case the market moves against you.  Many times I've been able to lock ahead of a market reprice by acting quickly.  Don't hesitate to contact me if I can help with anything mortgage-related - 702-812-1214 or 801-853-8720.  Make it a great day.

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