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.