January has been a strong month for mortgage backed securities, and while we still have a few weeks of trading left in the month, it appears as though the MBS has support at these high levels that it didn't have in the months previous. This is very bullish for interest rates which have fallen to their lowest level yet again.
All this is due to the uncertainty governments and economies face around the world, investors looking for some safe haven have found mortgage backed securities.
It's not all roses and lollypops though, recent changes made in Fannie Mae and Freddie Mac to their guarantee fee have lenders across the board scrambling to raise the premiums they charge when offering rates. This is not something your average market follower will be aware of, and I can assure you lender's will not be advertising this raise in fee. And they don't need to, it's a hidden fee that they pay to the underlying investor... consequently they are passing thiis expense on to the borrower in the form of higher rates to protect their profit margin.
These changes will begin to take affect in the coming days and weeks with the end of January being the witching hour.
Not much you can do about this, maybe write to your Congressman... but honestly this is in response to Fannie Mae and Freddie Mac posting losses quarter after quarter. Then they walk over to Congress with their tail between their legs and ask for more money... we're not talking millions, we're talking billions each quarter, a perpetual event that has been happening over and over again since this mess erupted in 2008.
Something has to be done to make to turn this trend around, so while I am upset at this raise in cost, something has to be done.
I don't want this to scar anyone into inaction, after all rates are as low as they have ever been, and even with this change in how pricing offered to borrowers will be calculated, there are still amazing rates to be had, and if the MBS continues to trade up, this will be inconsequential.
If you've been on the fence now would be an excellent time to secure financing.
Tuesday, January 10, 2012
Tuesday, January 3, 2012
Support to Start 2012
This morning was a little unnerving, watching the mortgage backed securities market. The stock market had opened strongly and treasuries were not trading well, selling off leading to higher yields and little support to the MBS.
It looked as though a down day was inevitable. Then a rally ensued and the MBS market slowly but surely climbed out of the ditch it had found itself in to stat 2012.
The day ended zero sum, an incredible accomplishment considering it was done in the face of an equities rally, while treasuries sold off.
This is a strong sign of support for the MBS markets and future interest rates. It would seem the low rate environment is here to stay, at least for the time being.
Those that have been sitting on the fence need to look at this rally as a beacon aimed straight at them. While 4.000 is available at no cost to most qualified borrowers, we may see a day or two where 3.875 becomes available. These are the rate sheets worth paying serious attention to.
While I do not think we will see the mortgage backed securities market rally to a new high forcing rates down onto a new lower plateau, I do think the current range has serious support and will offer these low rates for sometime.
Timing your rate lock should be your primary concern, wait for a bullish day and don't hesitate to lock when you see the terms you've been waiting for.
It looked as though a down day was inevitable. Then a rally ensued and the MBS market slowly but surely climbed out of the ditch it had found itself in to stat 2012.
The day ended zero sum, an incredible accomplishment considering it was done in the face of an equities rally, while treasuries sold off.
This is a strong sign of support for the MBS markets and future interest rates. It would seem the low rate environment is here to stay, at least for the time being.
Those that have been sitting on the fence need to look at this rally as a beacon aimed straight at them. While 4.000 is available at no cost to most qualified borrowers, we may see a day or two where 3.875 becomes available. These are the rate sheets worth paying serious attention to.
While I do not think we will see the mortgage backed securities market rally to a new high forcing rates down onto a new lower plateau, I do think the current range has serious support and will offer these low rates for sometime.
Timing your rate lock should be your primary concern, wait for a bullish day and don't hesitate to lock when you see the terms you've been waiting for.
Monday, November 28, 2011
MBS shows resilience as equities rally
The closing of last week was an interesting one... as investors sold out of positions preparing for the long weekend. After a good day of food, eyes were on Black Friday and Europe... would retail sales produce a number that suggested a weak or strong economy? And of course with Europe operating as usual, there was always a chance for a headline that would rock our markets.
Today, our first trading day after the long weekend, and the results are in... with everyone focused on how strong sales were over the weekend. 52 billion sold... at first this number is baffling... onw that the market has had a little time to digest it, the question everyone is asking is where's the beef?
Beef of course being profit... with profit margins tighter than they every have been, one has to wonder was this Black Friday not as successful as retails would like everyone to believe? Was the real benefit of Black Friday a turnover in old inventory?
This last question has many worried, and is the explanation behind both stocks and bonds rallying.
Bulls and Bears are having it both ways today, a rare day... which suggests we're still consolidation...
Today, our first trading day after the long weekend, and the results are in... with everyone focused on how strong sales were over the weekend. 52 billion sold... at first this number is baffling... onw that the market has had a little time to digest it, the question everyone is asking is where's the beef?
Beef of course being profit... with profit margins tighter than they every have been, one has to wonder was this Black Friday not as successful as retails would like everyone to believe? Was the real benefit of Black Friday a turnover in old inventory?
This last question has many worried, and is the explanation behind both stocks and bonds rallying.
Bulls and Bears are having it both ways today, a rare day... which suggests we're still consolidation...
Friday, November 18, 2011
Week of Consolidation in MBS
The mortgage backed securities market has been consolidating all week with low volume trading. Cues are still the same, an inverse relationship to the stock market, and tracking and 10 year treasury.
All things considered this week should have been more bullish in the bond markets considering the contagion occurring throughout the European Union. Typically one would have expected us to see a strong rally in our bond market as Europe struggles... alas, we didn't... what's the reason?
Honestly I don't know... one interesting market point is the Italian 5 and 10 year bonds are now inverted, typically a signal to sell equities... and even though we did see a sell off in equities this week, it was relatively contained especially when one looks at the low volume traded.
Consolidations usually lead to breakouts... which i ma expecting. I think we will see a breakout that leads to better pricing, when this happens is more difficult to predict. With us moving into the holiday season I don't think we will see much activity regarding trading this coming week... what we do see will be investors preparing for their long weekends which means probably moving into cash positions across the board. If I'm right we'll see the stock market and bond market finish down in comparison to current trading levels... with some degree of give and take between the two.
The first week of December will be interesting... with three strong weeks of trading before Xmas and the super committee finished with their task one way or another, markets will take their cues from their success of failure, we may even see another downgrade from a rating agency if they completely fail (as if their successfully cutting 1.2 trillion over 10 years - that's 120 billion a year is going to do anything to our out-of-control debt anyways). A success on the other hand I think will lead to an equity rally, which will be short lived due to Euro calamity and the fact that any accomplishment they do make really is like claiming you climbed conquered the local sand bluff. Nothing to write home about unless you are a complete narcissist - wait a minute, they are complete narcissists so we'll hear about for the next week as if it's the only event transpiring.
Not expecting a late rally today, just looking to hold our ground and not fall off... an even sum day would be a strong finish for us, currently down 6 ticks... Here's a graph illustrating the consolidation we currently are experiencing.
Here's to a wonderful weekend.
All things considered this week should have been more bullish in the bond markets considering the contagion occurring throughout the European Union. Typically one would have expected us to see a strong rally in our bond market as Europe struggles... alas, we didn't... what's the reason?
Honestly I don't know... one interesting market point is the Italian 5 and 10 year bonds are now inverted, typically a signal to sell equities... and even though we did see a sell off in equities this week, it was relatively contained especially when one looks at the low volume traded.
Consolidations usually lead to breakouts... which i ma expecting. I think we will see a breakout that leads to better pricing, when this happens is more difficult to predict. With us moving into the holiday season I don't think we will see much activity regarding trading this coming week... what we do see will be investors preparing for their long weekends which means probably moving into cash positions across the board. If I'm right we'll see the stock market and bond market finish down in comparison to current trading levels... with some degree of give and take between the two.
The first week of December will be interesting... with three strong weeks of trading before Xmas and the super committee finished with their task one way or another, markets will take their cues from their success of failure, we may even see another downgrade from a rating agency if they completely fail (as if their successfully cutting 1.2 trillion over 10 years - that's 120 billion a year is going to do anything to our out-of-control debt anyways). A success on the other hand I think will lead to an equity rally, which will be short lived due to Euro calamity and the fact that any accomplishment they do make really is like claiming you climbed conquered the local sand bluff. Nothing to write home about unless you are a complete narcissist - wait a minute, they are complete narcissists so we'll hear about for the next week as if it's the only event transpiring.
Not expecting a late rally today, just looking to hold our ground and not fall off... an even sum day would be a strong finish for us, currently down 6 ticks... Here's a graph illustrating the consolidation we currently are experiencing.
Here's to a wonderful weekend.
Monday, November 7, 2011
Slow Start This Monday...
We're off to a slow start this Monday, with investors sticking to the sidelines. Greece's PM has gone quietly into the night over the weekend, leaving the current government leaderless for the next couple of months until elections. "Leaderless" does have a negative connotation associated with it, in this situation not having a leader may actually work in Greece's favor. For now the Euro bailout will continue without the referendum vote, which has the Euro Zone feeling good today - well as good as you can feel while sick.
Italy has become the talk of the town, and Italy is by no means a small potato. This could be why investors are wary... Greece, was/is a small country. If it is forced out of the European Union, it would be tragic for the Greek people but the world would survive. Kind of like cutting of an arm to save the patient. The arm isn't going to do so well, but life will go on in the body, albeit a slightly different life.
You could argue Italy is just another appendage, unfortunately despite it being the boot of Europe, Italy is more than a mere appendage... it's the leg of a professional runner that is Europe... in other words, it is not small... it's catastrophic... will Europe survive, most likely, but she's never going to run again.
This is in my mind what has investors moving slowly this Monday morning. It's a lot to digest, and while we like to believe this type of world event would benefit our bond markets, there is a question that I have not yet asked, namely: would an event of this magnitude force European countries to sell US bonds and the MBS to raise capital?
Their first play will be to try and inflate their way out of this mess by creating more Euros out of thin air... probably digitized, but they may crank up the old printing presses as well. And what does this type of move do to inflation... bullish for the dollar yes, but for how long -and how many new dollars would we create to give to the IMF which would play a large role in the Euro bailout (yes you read that correctly right now we are bailing out Europe with US dollars produced and given to the IMF by the Fed).
It's a mess, and investors are starting to feel the pressure. It will be interesting to see this come to a head - let's hope that's all it is.
Moving forward, we're likely to continue to trade in the established range with rates better or worse than our current pricing... That's a prophetic statement considering the madness that is Europe. We'll need a major headline to force our markets... in the past that would have been the PM of Greece being ousted, but in today's market that just a typical headline... You'll know it when you hear it - the headline is coming.
Italy has become the talk of the town, and Italy is by no means a small potato. This could be why investors are wary... Greece, was/is a small country. If it is forced out of the European Union, it would be tragic for the Greek people but the world would survive. Kind of like cutting of an arm to save the patient. The arm isn't going to do so well, but life will go on in the body, albeit a slightly different life.
You could argue Italy is just another appendage, unfortunately despite it being the boot of Europe, Italy is more than a mere appendage... it's the leg of a professional runner that is Europe... in other words, it is not small... it's catastrophic... will Europe survive, most likely, but she's never going to run again.
This is in my mind what has investors moving slowly this Monday morning. It's a lot to digest, and while we like to believe this type of world event would benefit our bond markets, there is a question that I have not yet asked, namely: would an event of this magnitude force European countries to sell US bonds and the MBS to raise capital?
Their first play will be to try and inflate their way out of this mess by creating more Euros out of thin air... probably digitized, but they may crank up the old printing presses as well. And what does this type of move do to inflation... bullish for the dollar yes, but for how long -and how many new dollars would we create to give to the IMF which would play a large role in the Euro bailout (yes you read that correctly right now we are bailing out Europe with US dollars produced and given to the IMF by the Fed).
It's a mess, and investors are starting to feel the pressure. It will be interesting to see this come to a head - let's hope that's all it is.
Moving forward, we're likely to continue to trade in the established range with rates better or worse than our current pricing... That's a prophetic statement considering the madness that is Europe. We'll need a major headline to force our markets... in the past that would have been the PM of Greece being ousted, but in today's market that just a typical headline... You'll know it when you hear it - the headline is coming.
Friday, November 4, 2011
MBS recoverying...
The mortgage backed securities market is rally today as stocks sell off. Currently up 8 ticks on the day we have not made back everything we lost yesterday so rates are slightly off in relation to yesterdays opening rate sheet, but interest rates are tracking back down.
An interesting day all things considered, if the employment situation coming in with some positive figures, showing the private sector posting about 100,000 new jobs, one would expect the stock market to rally with our unemployment rate dropping from 9.1 down to 9.0.
Meanwhile the G20 is going on with a Greek vote of confidence set to take place (two different events)... today is anything but quiet, and that may be what has investors skittish and nervous about equities leaving bonds...
All things considered I think today ends zero sum. We may see some movement and repositioning, but in our market I do not expect to a crazy rally... if we make back the losses we incurred yesterday I'll leave for the weekend a happy man.
An interesting day all things considered, if the employment situation coming in with some positive figures, showing the private sector posting about 100,000 new jobs, one would expect the stock market to rally with our unemployment rate dropping from 9.1 down to 9.0.
Meanwhile the G20 is going on with a Greek vote of confidence set to take place (two different events)... today is anything but quiet, and that may be what has investors skittish and nervous about equities leaving bonds...
All things considered I think today ends zero sum. We may see some movement and repositioning, but in our market I do not expect to a crazy rally... if we make back the losses we incurred yesterday I'll leave for the weekend a happy man.
Thursday, November 3, 2011
MBS Selling Off... Rates Move Higher
Another day another policy out of the Euro Zone; Greece now abandoning its apparent referendum vote which has lead stocks up and bonds down - meanwhile the G20 kicks off with the apparent talk all about Greece, a country not even a part of the G20.
Down 9 ticks on the day, it's what we would expect in the wake of a 140 point DOW rally considering the 10 year treasury has tracked back up above 2.000 in yield trading around 2.04% So we continue trading in our range, waiting for new headlines relating to government intervention...
I don't expect to see us recover today, if we can hold losses to a minimum we can count today as a win.
ON A SIDE NOTE: This is not a free market and no one should consider or believe it to be a free market. Our market today completely depends on future government policy.
Sad really.
Down 9 ticks on the day, it's what we would expect in the wake of a 140 point DOW rally considering the 10 year treasury has tracked back up above 2.000 in yield trading around 2.04% So we continue trading in our range, waiting for new headlines relating to government intervention...
I don't expect to see us recover today, if we can hold losses to a minimum we can count today as a win.
ON A SIDE NOTE: This is not a free market and no one should consider or believe it to be a free market. Our market today completely depends on future government policy.
Sad really.
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