A Positive Breakout

If you've been reading, you know that 104.00 has been a strong point of resistance for the mortgage backed securities market. Today, we are experiencing a strong breakout pulling our market far beyond this level of resistance which should help to turn this 104.00 price point into support; working for us rather than against us.

Okay, I admit that was a complicated sentence. the bottom line, the MBS markets have broken through to new territory which will lead to even lower interest rates on future rate sheets. even though we are happy to see our market in new territory, the water here is definitely deeper and we have to recognize that posting record highs provide a serious incentive for the sale of MBS coupons.

Our last strong run above 104.00 led to a sell off that floored us well below 103.31. It took a week or so for our market to recover from this sale. Another sale could force our market lower again (my primary concern is the Fed selling its position) and is our only real identifiable threat. Sure a stock market rally could hurt us, a fast rise in treasury yield would hurt us, but these instances seem unlikely considering the overall health of our economy. Right now I think these low rates are here to stay for at least a short period of time, and will remain low through the incumbent election (after which all bets are off).

Take while the takings good.

Back In Action....

Apologies to all my loyal readers, and fanatic fans out there that missed me last week. I was called away on some personal matters that required my full attention. In my absence I am pleased to report that the market behaved and remained constant, with no true gains or losses that would influence rates and pricing dramatically. We'll start with a five day graph (below)


We see a couple of things here. First, it's clear the market is trading in a pretty consistent range, with the price point of 104.00 at the heart of the matter. All the bounces at the top end signify resistance. The sharp sell off and fast recovery in the middle (Friday afternoon/Monday morning) suggests true support. For these reasons it appears as thought rates are currently in equilibrium and will be holding. In fact I expect this range to trade for a little while, as investors and markets (in general) are reassessed.

Currently we are up one tick on the day... not bad, but as you can see we are off our highs. Volatility is picking up, clearly, but considering we are over the 104.00 price point and the 10 year yield is over 3.000% yield. Clearly long term markets are the investor trend and for this reason it seems as though rates are safe, at least for the time being.

It is a traders world, is the motto a friend of mine has coined and it is in a truism that cannot be argued.

Keep an eye on things and stay tuned. I'll be back tomorrow and the following with updated information.

A Conspiracy Theory

Okay, if there are any readers out there that don't like conspiracy theories, perhaps today's post isn't for you, because I can't necessarily prove that this is what is going on... but it really feels like this is what's going on. So here it is...

To our right this mornings graph... Notice that at the beginning of the day we saw nice gains. In fact we were up three ticks. Treasury yields were low (and continued to trade normally), the stock market was down and flailing - things seemed to be as they should this fine Monday morning. Then BOOM... we walk straight off a cliff, and fall a full 6 ticks resulting in our being down 3 on the day. The market paused... and then continued to trade down another three ticks.

Finally we rebounded, but have been trading lower all day and are now down 8 ticks on the day.

Here's the conspiracy behind today's losses... It takes a massive investor to shift the market and produce a drop like we saw this morning. Clearly it was profit taking... the question is who is in a position to sell mortgage backed securities for a profit and create that large of a shift? The answer... the federal reserve does. They did after all buy 1.25 trillion over a two year period which ended about three months ago. It would make sense they are now offloading and selling a portion of this position.

If I am right, we have our government and their monetary policy to thank for these losses and the worse pricing that is to result. This is a troubling fact because it raises the possiblility that the Fed Could be continuously ordering the sale of small positions (and larger should the market climb further) around the 104.00 price point. Doing so would keep rates around the current levels, and is straight market manipulation. The Fed definitely has a large enough position to execute this type of strategy and curb lowering rates, but this tightrope walk could end in a serious fall if investors get wise to this plan and start selling themselves. That's when these low rates end. Let's hope I've simply had one too many cups of coffee and am reading too far into this sell off.

Strong Friday leads to Better Rates this Weekend

Rates have improved yet again as our market posted positive gains providing excellent rates moving into the weekend. Monday will be important. If we manage to post gains on Monday we will be providing support to the 104.00 price point, a point we have struggled to get over.

Difficult to say whether or not we will have a positive day come Monday or if investors will take this opportunity to capture some profit by selling off. If your nervous and have escrow closing soon, locking is a wise play.

Another positive day

It was another strong day of trading today in the mortgage backed securities market. Moreover, we saw the ten year treasury yield fall back below 3.000% which is a very good indicator for our market's future.

Pricing right now is as good as it has ever been. For this reason I am very busy and do not have a whole lot of time to spend writing today. If you're happy with today's rate sheet, locking is not a bad idea so long as you will not be subject to extensions. If you have some time floating could led to better pricing.

There is support in our market right now... even if we hold at current levels, a 15 day lock will have better pricing than a 30 day... working towards this shorter lock period is an admirable goal. Just be prepared to lock at a moments notice. Firesales are nasty and can erode pricing faster than you can say "dummer."

Strong Day of Gains

It was a strong day in the mortgage backed securities market, evidenced by the graph to our right. Curiously however, reprices were slow to come, some not at all from lenders that you would have expected improvement from. If you are currently approved with a lender that did reprice, take a good look at the rate sheet, if you're approved with a lender that didn't reprice, holding off until tomorrow's opening may prove to be the smart play.

We have to play close attention to that treasury yield (yellow) which is rising slowly but surely. This will put pressure on our market should it continue.

Additional considerations include longer underwriting turn times at the most favorable lenders. As a result most are either floating in open market for a longer period of time, or forced to take a 45 day lock to ensure they will not need extensions at the time of closing.

Considering this fact, it would be wise to begin paperwork and submit as soon as possible if you are considering taking advantage of these rates.

Don't Panic....

Yes, this is kind of a scary picture... but it is not as intimidating as you think if you know the fundamentals behind the movement represented in this graph. The free fall our market experienced yesterday at close is due to settlement which is the transition of the current note into the future note... in other words, yesterday the July coupon rolled into the August coupon. Futures 99% of the time trade lower than the current market coupon. Consequently when settlement occurs we see a fall in pricing.

As I mentioned this happens every month, so lenders are prepared of this revelation. As a result rate sheets this morning are not too off from yesterday's pricing, and at some lenders we have seen better pricing than yesterdays close despite this slide.

Regardless the fact we are two ticks down is not a good sign. Typically after settlement we see the market rally. Today our being two ticks down is a little unnerving. This is probably due to the rally occurring in the stock market today, and the treasury yield climbing.

Should this continue we may have cause to worry, in the meantime if you are floating be vigilant.

Below is a snapshot of the yearly... as you can see we are still enjoying highs, despite the slide due to settlement.

All things considered the next couple of days will be important to our re-establishing the upward trend. A rally today will prove difficult considering the markets are focused on earnings of publicly traded companies. We'd need to see some seriously week numbers moving forward for today's direction to turn.

I am looking for support today. Support today can lead to gains tomorrow.

The Makings of a Breakout...

It's too early to go counting our chickens, but can count our eggs... and this Monday morning, has brought gains to our market which, should they hold, will lead to better pricing later today.

We have a couple of things going for us this morning. First the stock market as a whole is trading lower today. Moreover about two thirds of all stocks are trading down. This broad downtrend (although we really should be careful using the word "trend") suggests overall weakness in our economy which entice investors into our market.


You'll notice on the daily snapshot that the treasury yield has taken a strong turn down, which as expected has lead to better pricing in our market. This is the converse relationship between treasuries and MBS at work. With that said, because spreads are so large, we do have some room to move on the other side. In other words, we can afford minor gains in the treasury yield without our seeing the mortgage backed securities sell off. This explains why our market held over the last few days as treasuries sold off and their yield rose back above 3.000%.

We are back trading at the highest levels the mortgage backed securities market has posted on record. All things considered, this afternoon's rate sheet should be very attractive. If you are in the market and still floating, take a hard look at it. If you are not already in this market, now would be the time to give us a call and get started. 760.730.5040

Hmmmm....

My post title sums it all up. This snapshot of our market is a little unnerving. Here we are holding, near record highs, as the treasury yield sits above 3.000%, testing higher levels. What is interesting is the mortgage backed securities market appears to want to remain at these high levels despite treasury activity.

Just look at the climb in the treasury yield... but mortgage backed securities have barely flinched. The typical inverse correlation between the MBS and treasury market is not active right now.... why???

There is talk among the informed that attribute this to low volume trading. Others to the massive spreads between MBS and treasury right now, which offers a bit a a cushion for losses... whatever the reason, one thing is for certain, this will not continue forever, and if the treasury yield does continue to rise, we can expect to start seeing sell offs in the mortgage backed securities market.which would lead to higher rates.

All things considered, right now moving into the weekend, it appears as though our market will hold for another day. All eyes on treasuries... yields must remain low for our market to hold.

Up and Down Trading... Tomorrow Will Be Telling...

It was a wild ride today... with traders favoring our market over treasuries today, we were fortunate. With that said the 10 year treasury yield did creep above 3.000%, which is not good for our markets.

Which brings us to tomorrow. Will investors see this as a bargain opportunity and buy buy buy, sending the treasury yield back down thereby fueling a buying frenzy in the mortgage backed securities market? Perhaps, investors will see the rising yield, reevaluate and sell off slightly, as others follow the same formula, the seemingly minor sell off could gain steam turning into something a little more cataclysmic leading to substantial losses.

Both of these possibilities are well within the realm of the real. All things considered, during uncertain times it can be very helpful to step back and look at the larger picture. Below is the one year graph for this very purpose.


Difficult call to make. I will leave it to you.

Sideways trading... be Cautious

Today we are seeing our market move sideways, with the bulls and bears fighting for authority over the final direction our market is to follow. It's clear we are still taking our cue from the 10 year treasury yield which is currently rising. This is putting pressure on mortgage backed securities and is probably a large reason why we are seeing resistance today.

Of course it could also be due to the fact that we are very close to breaking through the 104.00 price point on the 4.5% note. This price point seems to be serving as resistance. I find it highly unlikely that our market will break through this price point today; but we have been testing this resistance line for the last couple of days. Should the treasury yield retreat, we could see our market break through.

This needs to happen for rates to continue to go lower. In the meantime I anticipate we will see some horizontal days of trading. All things considered sideways trading is not a bad thing. It allows you to take advantage of being able to float into shorter lock period which will result in better pricing.

To reiterate this point, have a look at this one year graph below. We're sitting on top of the world. Not a bad plateau to be stuck on.

And We're.... Off!

It was a questionable start this morning, when the opening bell sounded and traders found themselves back at their desks after a long weekend. As you can see our market is currently enjoying gains and is up about 9 ticks on the day. This will lead to slightly better pricing than what was available at the close of last week. With that said lenders have not priced these gains into their rate sheets yet, and are hedging against possible market shifts.

With the improved pricing, we have hit new highs which will lead to better pricing. With that said we have to be mindful of settlement, which is approaching and will curb our market somewhat. All things considered however, this is not something you should be too concerned over unless you are looking to lock your loan and close in the next couple of weeks. If you have time, settlement will come and go as it does every month and is business as usual.

We can thank the low treasury yield for these currently favorable rates. Keep a close eye on this indicator if you want to know the future before it happens. Should the yield on the 10 year treasury raise above 3.000%, you can expect interest rates for mortgage to go up. As long as the ten year remains below 3.000%, we will enjoy these incredibly low rates.

Rates Holding ... Happy Fourth

It's Fourth of July Weekend. Banks are closed Monday so this pricing is going to be good through the long weekend.

30 year fixed conforming 4.25% (APR 4.446%)
30 year fixed jumbo conforming 4.5% (APR 4.671%)

These are absolutely fabulous rates. If you have been actively tracking the market then you know we have been hovering around this level for the last week or so. I know many of you may be thinking, rates could go lower, I'm going to wait. Yes... I suppose they could go lower, but considering they are as low as they have ever been locking makes sense.

It has been an interesting day in trading. The jobs report came out and was negative... shedding 138,000 jobs, the most since last October. This supports investors moving to long term markets and supports those already here. Another major indicator that helped support our market were factory orders, down 1.4% which is huge, suggesting our economy is not in recovery mode, and is in fact sliding the other way. Bad news for our economy, good news for rates.

As you can see our market is currently consolidating, evidenced in our short term graph; and as you can see in the long term (below) we are still able to take advantage of this opportunity.

Have a great weekend all, any preapprovals needed for new home purchases and offers being submitted this weekend. We are available, our contact information can be found through our website... www.homeloanorg.com

Volatile Trading... Tomorrow is the BIG Day

Take a look at those chompers. The teeth on that mortgage backed securities graph speak to just how volatile our market is. People are running to safety from short term markets, only to find our market is at all time highs, leaving their flight to safety riddled with risk. Turn on the news, and only person is telling you now is the time to by stock, while another is screaming run for the hills.

Meanwhile, Obama in his State of the Union at the beginning of this year vowed to focus on jobs... but focuses on immigration reform, and health care. All the while our national debt creeps to the highest levels ever recorded. Spend more... cut back on spending... Our economy is at odds, and this graph represents this fact.

Tomorrows jobs report is what everyone is waiting on. Expectations are grim, which is interesting because the market may have already priced in a poor report. Any way you look at it, it isn't good for our economy. The only beacon are the low rates this storm is producing. Rates are still at record lows despite the minor sell off yesterday.

Today it seems we have found support again, despite the chopatility evidenced here.