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Tuesday, January 19, 2016

Mortgage Bond Market Analysis - Tuesday Monday edition

I hope you had a fantastic weekend - whatever that means for you.  The FNMA benchmark bond ended Friday up 30 basis points which, while solid, was 10 basis points below the 2nd resistance level and 18 basis points off its high for the day.  This morning, we are seeing a bit of selling as the benchmark bond is down 8 basis points with the stock market up (Dow +153).  The focus for traders is oil and global weakness which is causing the US stock market to sell off while we see a flight to safety from traders around the world to US bonds, including mortgage bonds.

If this weakness continues, I expect the Fed to either slow down the rate increase, as compared to what they had planned to do, or to pause it until the economies (especially ours) shows real signs of improvement.  In a blog post of mine a week or so ago, I mentioned that one of the Fed presidents talked about starting to whittle down the balance sheet of the bonds (including mortgage bonds) they had purchased when the quantitative easing plan was in play.  As the Fed sells off these assets, it could put significant downward pricing pressure on bonds which makes rates go up.  This compounds the fact that the Fed is also raising their short-term rates which has ripple effects on longer term mortgage rates.  Here's the secret sauce:  with global markets reeling and investors looking for safe havens (US treasuries are considered to be the safest investment with other high quality bonds, like mortgage backed securities, not far behind), the Fed could sell bonds and now at a decent price without too much of an adverse impact on rates since there are lots of buyers.

As for economic data, the NAHB Housing Market Index came in at 60 vs. the estimates and previous reading of 61.  Tomorrow we will get the CPI as well as Housing Starts and Building Permits.  CPI is the big one that would have the biggest impact on rates and I really don't see much threat of inflation at all in tomorrow's reading.  The estimates for Jobless Claims on Thursday are in the upper end of the range we've been in over the last several months so it doesn't look like there is any news there to squash our little run either.  From a technical standpoint, we are above all of the moving averages and we are 18 points below the 2nd resistance level.  The RSI continues to be overbought so from a technical standpoint there is a bit of headwind for the bond to move higher.  That said, there's really no reason for traders to sell either, so as long as oil stays low (and possibly moves lower) and the global weakness continues (we get an ECB policy statement on Thursday), there's a chance that bond prices could be pushed higher with rates going even lower.

What all of this means is that if I have a client whose loan closes in 15 days or less, I'm going to lock.  If the closing is 15+ days, I'm going to float - but as usual, I'm going to keep a close eye on the market so that I can lock quickly should the markets make a sharp move against me.  Please feel free to contact me if I can help with anything mortgage related - we are closing loans in 3-3.5 weeks and we will keep you (Realtor, client and listing agent) updated every step of the way.  I'd love to earn your business so give me a try and let me show you what we can do.  Make it a great day.

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