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Monday, June 27, 2016

Mortgage Bond Market Analysis - FOLLOW THROUGH on Brexit

Happy Monday morning.  And if you or your clients are floating, you should be HAPPY.  On Thursday, England voted to take their country back.  They are no longer part of the European Union and part or the reason for that vote was to give them more freedom to enact trade agreements and deregulate the industries that bring in revenues for Great Britain.  I have coached basketball for a long time and one area of expertise that I have is coaching shooting.  There are a lot of things that go into making a good shooter  but one of the most important things other than proper footwork and balance is follow-through.  This is a key concept in many sports, a quarterback has to have good follow-through to make a good throw.  Tennis players and pitchers need good follow-throughs on their swing and pitch, respectively.  Shooters need good follow-through in basketball to be consistent with their shot.  Well, on Friday the FNMA benchmark bond closed up 60 basis points, 29 basis points off its high and 26 basis points below the 2nd level of resistance at 103.24.  This morning we are getting some follow-through (I love it when it comes to mortgage bond buying) as the benchmark bond is up 38 basis points at 103. 62.  Since the close of business on Thursday, this is an improvement to the interest rate of about .25%.  This is awesome and while we may still see more improvement, there would be absolutely nothing wrong with taking your chips off the table, as they say in poker, and locking in your rate.

As I have said many times before, some of the biggest drivers of interest rates are geo-political events.  While economic data, especially key points like the CPI and jobs numbers along with a few others can be big influencing factors for interest rates, big events like England leaving the EU cause enough consternation to get investors to move money from more speculative investments like stocks and commodities to safe-haven investments like bonds.  To make matters even better for mortgage borrowers who are looking to lock, the fact that yields are extremely low (and even negative in a few parts of the world) around the rest of the globe, our bonds are the most attractive of all bonds and the more money flows into our bonds, the lower the rates go.  

We have a fair amount of semi-important economic data this week ahead of jobs week next week (and my birthday on Tuesday) but I think the focus is going to be on Europe.  Another thing to consider from a technical standpoint is that even with the two huge up days of Friday and today, the Relative Strength Index has yet to cross the overbought threshold.  It's knocking on the door but it isn't there yet.  If you decide to continue to float, I would pay special attention to my app - buyerZapp , you can download it by clicking on the link in the upper right hand corner - so that if rates begin to move against you, you can act quickly to lock.  I'm always available and happy to help in any way I can so feel free to contact me.  If you have mortgage insurance on your loan, you may want to see if refinancing makes sense with how low rates are right now.  Contact me at 702-812-1214 or 801-893-1737.  Make it a great day and a better week.

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