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Monday, August 29, 2016

Mortgage Bond Market Analysis - Monday, Monday.

It's Monday and trader's are digesting the news from the Fed Symposium in Jackson Hole.  Let's take a look at some data points:  on Friday, the August Consumer Sentiment Index came in at 89.8 vs. expectations of 90.6; that's the lowest it's been in quite a while.  This morning, we had a gaggle of decently strong data.  July Personal Income was up .4% as expected and Personal Spending also met expectations coming in up .3%.  Core PCE was up 1.6% YOY, also as expected.  While none of these data points from today are incredibly hot, they are all reasonably strong and they certainly indicate economic growth.

Friday, after Janet Yellen's speech, traders got a bit nervous and sold off 21 basis points by the end of the day.  While the FNMA benchmark bond closed 9 basis points above its low, the down day signalled some trepidation regarding the upcoming FOMC meeting in September.  Today, however, is another day and traders are playing it differently with some buying going on as the benchmark bond is currently up 25 basis points to 103.76; that's 4 basis points off its high for the day and 7 basis points above the 2nd level of resistance.  The RSI (Relative Strength Indicator) is approaching the overbought threshold as well.

So what does all of this mean?  I would recommend locking if you or a client / friend have a loan in process that is at a lockable point.  I really don't see enough upside potential to warrant the risk of floating.  I hadn't verified if Jobs week is this week or next week when I did my last MBMA, but it is THIS WEEK.  I rarely like floating into the release of jobs data.  We get the ADP Private Payrolls on Wednesday, Initial and Continuing Jobless Claims on Thursday and Non-farm Payrolls along with the Unemployment Rate on Friday.  Last month, all of these numbers were good.  If we get more strong jobs numbers with other good news from the manufacturing and service sectors, I would not be surprised to see the Fed raise rates in September.  In lieu of a video today, I'll leave you with a pretty picture of the current chart for the mortgage bond market:

As you can see from the chart, the FNMA benchmark bond continues to trade in a very narrow range.  Usually the longer the bond trades in a tight range, the bigger the breakout will be.  The bigger likelihood is for a sell-off which means higher rates and this could very well happen with strong date this week and / or next week as traders would likely anticipate a Fed Funds Rate increase at the September FOMC.  If you do decide to float, please keep a close eye on the market by downloading my app from the link in the upper right hand corner.  Make it a great day and a better week.

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