Turbulence in the Stratosphere

It has been an epic week in the Mortgage Backed Securities market bringing us new yearly highs and then some. Currently we are skirting historic highs (again must remember highs mean lower yields which mean better rates for borrowers).

Even so, we've finally hit some turbulence, after going up 27 ticks yesterday our market has teetered, and we are currently down 20 on the day. Here's a graph to illustrate just how far we've come and the retraction we are currently facing.

As you can see, although we don't like to see sell offs, at this point in time a sell off and some profit taking is to be expected. I do not expect our market to recover the losses we have incurred today, but the weather can't always bring sunny days... rain is necessary... so too is a little profit taking.

Next week will be telling and something to keep a close eye on. Currently the 10 year treasury yield is an important benchmark we must pay close attention to. With it's yield below 2.5% (2.4853) we have some support at these high price points int he MBS. We need this yield to stay below 2.5. Should it move down, it will only help our market, but I do expect us to find a range in the very near future which means when we do, reduced yields in treasuries will only continue to support our range, inside of it we'll see investors buying in and some selling off taking profits. For this reason I anticipate we will see these low rates moving into the future for better or worse. To break out of this range (which we are expecting but not in yet), I believe we would need the 10 year yield to drop below 2.25%...

Think that's crazy? So is 2.5% but here we stand. It could happen, would I hold out for this revelation? Not at all... take while the taking is good. There is too much risk associated with sitting on the fence at this point in time.

Let's not forget about inflation... it's looming and our arch nemesis. If these current rates will put you in a better position. Secure them while they are available and don't look back.