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Wednesday, January 20, 2016

Mortgage Bond Market Analysis - Hump Day

It's already mid-week and the equities market is getting hammered.  Don't they know that if you want to get sloppy drunk that you should save it for the weekend?  I mentioned yesterday that I felt like there would be continued weakness in oil and the global equities market as well as the likelihood for more weak economic data so I recommended floating.  Yesterday, the FNMA benchmark bond finished down 9 basis points which is about where it was when I wrote my post.  Today, we have some mixed data and more weakness in oil which is causing the stock market to sell off.  The Dow is down around 400 and the S & P is back to late 2014 levels.  The benchmark bond is up 30 basis points as I write this, 10 basis points off its morning high but it appears to be trending up.

One of the three main measures (PCE, PPI and CPI) the Fed uses to track inflation came out mixed today.  The Headline CPI MOM was down -.1% vs. estimates of 0%.  Core CPI MOM was also a bit lighter than expected at .1% vs. estimates of .2%.  The Core CPI YOY was 2.1% and met the estimates.  It looks like builders are ramping up for the spring with 1,232K new permits vs. expectations of 1,200K, although considerably lower than last month's reading of 1,289K.  Conversely, Housing Starts at 1,149K were lower than the estimates of 1,200K and last month's reading of 1,179K.  Tomorrow we get the ECB Policy Statement - expect Draghi's message to basically be one of continued weakness.  We also get Jobless claims - it's Thursday, what do you expect? - and the Philadelphia Fed Manufacturing Survey which is supposed to come in weak, just less weak than last month.

From a technical stand point, at 104.23, the benchmark bond is 11 basis points above the 1st level of resistance but 25 basis points below the 2nd level which is at 104.48.  The RSI is overbought but the bias has changed ever so slightly.  I expect traders to pay attention to Draghi's comments tomorrow to see if there is any improvement in Europe and I also expect oil and its impact on stocks to continue to dictate the flow of money which is currently into bonds.  Because of that, I recommend floating if you or your client is closing 15+ days out and locking if they are closing in 15 days or less.  Rates are great so it's a great time to buy.  If you have people that are on the fence, let them know that this is a great opportunity to lock in a great low rate that won't be around forever.

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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