After a terrible month of October in relation to market performance, the mortgage backed securities market opened strong this first trading day of November after a strong close on the final trading day of October.
It's too soon to be calling this a rally, but this does illustrate support and a floor beneath current trading levels. Based on the events that brought mortgage backed securities to their low price point (low price means higher yield and worse rates) in October it's clear government intervention and headlines is what is moving markets for better or worse.
All things considered we appear to be trading in a range that was previously established before the Fed came out with operation twist. This range is is producing slightly higher rates than expectations, but with the market trading up and a well timed lock could mean securing the terms you are looking for.
This market is all about timing and timing mean being prepared. If this you're looking for a lower rate, but are apprehensive about entering a market as volatile as this one, you simply need to set a point of execution that you stick to and work towards that pricing. If it does not present itself, you've spent some time reviewing your financial position, which is something everyone should do at least once a year anyways.
I remain optimistic that interest rates will remain low and possibly trade even lower although lower rates will require excellent timing.
Monday, October 31, 2011
Friday, October 28, 2011
An Up Down Trading Week Ending on the Positive Side
Okay, it's a little early to call the close today but considering the strong trend up erasing all the losses we experienced yesterday after a strong day trading Wednesday and it appears the mortgage backed securities market is going to have its first positive week trading in the entire month of October.
Amazing considering the fact that at the end of Q3 (September0 we were expecting a strong move even higher bringing rates lower... instead we witnessed a systematic sell off bleeding value day after day until we found support which we are now rallying off of. It's important to understand the losses incurred in October, was not a firesale or in response to economic data that suggests a real recovery is beginning. The losses experienced were all based on mere conjecture and the European leaders jaw wagging. Yes I will concede they have apparently come up with a deal, but the deal which they've announced is a small band aid placed over a large and bleeding wound. Moreover, it appears as though there are more wounds that do not have band aids yet. Right now the Euro plan is to hopefully squash the Greek debt issue thereby containing the spread of a debt crisis across Europe. Problem is, they don't seem to realize the patient they're treating is a hypochondriac, as while the voluntary (curious whose going to volunteer) haircuts for 50% applied to Greek debt does nothing to address the Italian and Portugal debt issues.
Point is, the all clear siren investors are listening to will soon be the "world is on fire" siren which will send them running back to the bond markets.
True this is one man's opinion... so disagree with me if you choose to. Just have a reason that doesn't include the DOW rallying, and is based on Keynesian economics which this euro experiment has proven does not work.
Amazing considering the fact that at the end of Q3 (September0 we were expecting a strong move even higher bringing rates lower... instead we witnessed a systematic sell off bleeding value day after day until we found support which we are now rallying off of. It's important to understand the losses incurred in October, was not a firesale or in response to economic data that suggests a real recovery is beginning. The losses experienced were all based on mere conjecture and the European leaders jaw wagging. Yes I will concede they have apparently come up with a deal, but the deal which they've announced is a small band aid placed over a large and bleeding wound. Moreover, it appears as though there are more wounds that do not have band aids yet. Right now the Euro plan is to hopefully squash the Greek debt issue thereby containing the spread of a debt crisis across Europe. Problem is, they don't seem to realize the patient they're treating is a hypochondriac, as while the voluntary (curious whose going to volunteer) haircuts for 50% applied to Greek debt does nothing to address the Italian and Portugal debt issues.
Point is, the all clear siren investors are listening to will soon be the "world is on fire" siren which will send them running back to the bond markets.
True this is one man's opinion... so disagree with me if you choose to. Just have a reason that doesn't include the DOW rallying, and is based on Keynesian economics which this euro experiment has proven does not work.
Friday, October 21, 2011
Rates Fall Flat to End the Week
There's no if ands or buts about it, ours markets are taking their cues from the governments and their chosen methods of intervention or lack there of. This weekend we are led to believe the Europeans will come to terms and solve the problems the Eurozone has been experiencing or at least make good progress on an agreed upon path to prosperity.
I find this somewhat amusing, as if the last 6 months have been complete experiments leading up to this solution. Haven't they been trying to solve this mess now with various government interventions already? This was never suppose to be a political website, unfortunately when you have the governments of the world completely responsible for market shifts, you can't help but discuss the policy behind their choices.
There is skepticism in the market about the Europeans actually being able to solve anything, proof of which can be seen by a strong bond day, only down one tick in relation to a strong rally in the stock market. The bulls and bears are holding their ground acting how they think they must, it will be interesting to see who gives.
Monday will be telling, and will most likely take its direction from Sunday which is when the European leaders are meeting to discuss terms. So much for free markets working it out...
I find this somewhat amusing, as if the last 6 months have been complete experiments leading up to this solution. Haven't they been trying to solve this mess now with various government interventions already? This was never suppose to be a political website, unfortunately when you have the governments of the world completely responsible for market shifts, you can't help but discuss the policy behind their choices.
There is skepticism in the market about the Europeans actually being able to solve anything, proof of which can be seen by a strong bond day, only down one tick in relation to a strong rally in the stock market. The bulls and bears are holding their ground acting how they think they must, it will be interesting to see who gives.
Monday will be telling, and will most likely take its direction from Sunday which is when the European leaders are meeting to discuss terms. So much for free markets working it out...
Friday, October 14, 2011
Interest rates Continue to Feel Pressure
Mortgage rates have not tracked back down as we had hoped. We are starting to see signs of a bottom to this sell off, but the low rates many were hoping for are no longer available and we've moved pretty far away from them in terms of secondary market pricing.
There are a number of reasons for this shift in investor sentiment, but the primary reason is the announcement made earlier this month that the EU had/has come up with a plan and are in agreement and will be releasing details at the end of the month. This announcement has been enough fuel equities which has led to a consistent sell of in the bond market.
It's my professional opinion one heavy hand on our market right now are the bailouts being discussed. I've heard 2 trillion in new Euros, the IMF wanting 250 billion to assist in the EU bailout... these are two examples that come to mind, and something I make point to because it infers inflation and that is the antithesis to mortgage backed securities.
Moving into the weekend I do not expect rates to mount any sort of recovery, and will probably continue to sell off or trade in previously established ranges we now find ourselves in once again. We'll need an international tape bomb to pick our market up and move rates back down.
I do think this headline is coming it's just a question of when it hits the wire.
There are a number of reasons for this shift in investor sentiment, but the primary reason is the announcement made earlier this month that the EU had/has come up with a plan and are in agreement and will be releasing details at the end of the month. This announcement has been enough fuel equities which has led to a consistent sell of in the bond market.
It's my professional opinion one heavy hand on our market right now are the bailouts being discussed. I've heard 2 trillion in new Euros, the IMF wanting 250 billion to assist in the EU bailout... these are two examples that come to mind, and something I make point to because it infers inflation and that is the antithesis to mortgage backed securities.
Moving into the weekend I do not expect rates to mount any sort of recovery, and will probably continue to sell off or trade in previously established ranges we now find ourselves in once again. We'll need an international tape bomb to pick our market up and move rates back down.
I do think this headline is coming it's just a question of when it hits the wire.
Wednesday, October 12, 2011
Rates Continue to Move Higher...
Interest rates for home mortgages continued to inch higher as pressure from the equities market is weighing heavily on bond traders. To put things in persepctive we've seen a 50 bip swing in the ten year treasury yield, and mortgage backed securities have followed in form, selling off to the lowest levels we've seen in over a month.
Remember lower price means higher yields, and higher yields mean higher interest rates for home loans... so here we sit at new lows... even so, I'm not completely negative on interest rates, contrary to what some may be thinking.
What I think we're experiencing is severe volatility. severe enough to push our market so low that many are prepared to declare it the end of low rates... in reality I think we're going to see the mortgage backed securities market surge forward in price bringing rates down yet again, perhaps even lower than what we recently experienced.
Why you ask?
It's become clear that we no longer live and operate in a free market. This is not a debatable statement, governments and government intervention is now the lead indicator for our markets.
The most recent example of this is the Euro officials coming out and saying they've figured it all out and there now nothing to worry about, they've got the Euro mess under control and will have the published plan that will save everyone available by the end of the month. This revelation I found fascinating... because the markets ate it up and have been buying equities ever since as if they really do have a solution, and everyone will be "okay."
Forgive me if I am not going to buy into that particular piece of propoganda, and I am under the impression the false promises are going to come full circle and kick everyone in the ass when equities figure out the real truth and a major sell off insues.
At this point in time we'll see everyone run back to bonds, and rates will fall through the floor.
My advise is get your ducks in a row so you are prepared to take advantage of the market when it returns... those that wait to hear about low rates are certain to miss the boat.
Remember lower price means higher yields, and higher yields mean higher interest rates for home loans... so here we sit at new lows... even so, I'm not completely negative on interest rates, contrary to what some may be thinking.
What I think we're experiencing is severe volatility. severe enough to push our market so low that many are prepared to declare it the end of low rates... in reality I think we're going to see the mortgage backed securities market surge forward in price bringing rates down yet again, perhaps even lower than what we recently experienced.
Why you ask?
It's become clear that we no longer live and operate in a free market. This is not a debatable statement, governments and government intervention is now the lead indicator for our markets.
The most recent example of this is the Euro officials coming out and saying they've figured it all out and there now nothing to worry about, they've got the Euro mess under control and will have the published plan that will save everyone available by the end of the month. This revelation I found fascinating... because the markets ate it up and have been buying equities ever since as if they really do have a solution, and everyone will be "okay."
Forgive me if I am not going to buy into that particular piece of propoganda, and I am under the impression the false promises are going to come full circle and kick everyone in the ass when equities figure out the real truth and a major sell off insues.
At this point in time we'll see everyone run back to bonds, and rates will fall through the floor.
My advise is get your ducks in a row so you are prepared to take advantage of the market when it returns... those that wait to hear about low rates are certain to miss the boat.
Thursday, October 6, 2011
Rate Continue to Climb Higher...
Mortgage rates are again under pressure today as the mortgage backed securities market sells off, currently down 10 ticks on the day...
We seem to be caught in a catch-22, equities posts gains, we sell off, equities sells off, mortgage backed securities posts gains. This back and forth ping pong match is making lenders nervous, and we're seeing it in their rates sheets as they hedge expecting losses, regards of which way the market moves.
In fact hedging is something lenders have become very good at and is the only real factor that is controlling wide price swings on published rate sheets.
That's not necessarily a good thing for those of us in tune with the secondary market. Hedging ultimately leads to more profitability for the funding bank. This profitability comes at a cost that the consumer ends up paying through higher terms. Of course what we are discussing here is an invisible factor that is never really discussed; be that as it may it is still taking place.
Can the underlying borrower do anything about hedging? Sadly no... hedging has and will always take place to some degree, after all the price difference between secondary market delivery and what the borrower secures in terms of rate defines the fund lenders profit for that funded loan (I'm not going to get into servicing here).
The only real cure, if you can call it that, for the hedging epidemic we're experiencing is a stable, and somewhat predictable market. If one can accurately predict, with some degree of deviation of course which one would expect, market movement, one does not need to plan for the worst and can price more aggressively not having to worry about eating their shorts on a strong shift against them.
Believe it or not, historically lenders were very good at predicting market movement and trends... after all, interest rates typically do not shift in yield like we've seen recently...
So while interest rates remain low, historically speaking, they could be lower if the market would settle. Now I don't expect this to happen, the world is on fire... so we're stuck with hedging banks, trying to protect their profits. Can't really blame them... what we can do is everything in our power to position ourselves to take advantage of rates when they present themselves.
Strategic locks, similar to trading is all about market timing. Rather than lock at the time of submission, you lock when the market is trading at a high point in the established range. Doing so will mean securing the best possible terms in a volatile market.
For this reason it is crucial your lender has access to secondary and understands the momentum and trends currently operating there.
This blog of course addresses these markets and is a peek inside my mind as a professional and practicing mortgage broker.
We seem to be caught in a catch-22, equities posts gains, we sell off, equities sells off, mortgage backed securities posts gains. This back and forth ping pong match is making lenders nervous, and we're seeing it in their rates sheets as they hedge expecting losses, regards of which way the market moves.
In fact hedging is something lenders have become very good at and is the only real factor that is controlling wide price swings on published rate sheets.
That's not necessarily a good thing for those of us in tune with the secondary market. Hedging ultimately leads to more profitability for the funding bank. This profitability comes at a cost that the consumer ends up paying through higher terms. Of course what we are discussing here is an invisible factor that is never really discussed; be that as it may it is still taking place.
Can the underlying borrower do anything about hedging? Sadly no... hedging has and will always take place to some degree, after all the price difference between secondary market delivery and what the borrower secures in terms of rate defines the fund lenders profit for that funded loan (I'm not going to get into servicing here).
The only real cure, if you can call it that, for the hedging epidemic we're experiencing is a stable, and somewhat predictable market. If one can accurately predict, with some degree of deviation of course which one would expect, market movement, one does not need to plan for the worst and can price more aggressively not having to worry about eating their shorts on a strong shift against them.
Believe it or not, historically lenders were very good at predicting market movement and trends... after all, interest rates typically do not shift in yield like we've seen recently...
So while interest rates remain low, historically speaking, they could be lower if the market would settle. Now I don't expect this to happen, the world is on fire... so we're stuck with hedging banks, trying to protect their profits. Can't really blame them... what we can do is everything in our power to position ourselves to take advantage of rates when they present themselves.
Strategic locks, similar to trading is all about market timing. Rather than lock at the time of submission, you lock when the market is trading at a high point in the established range. Doing so will mean securing the best possible terms in a volatile market.
For this reason it is crucial your lender has access to secondary and understands the momentum and trends currently operating there.
This blog of course addresses these markets and is a peek inside my mind as a professional and practicing mortgage broker.
Wednesday, October 5, 2011
Mortgage Rate Inch Up...
It has not been a nice opening this October for mortgage rates, investors (some at least) have apparently decided enough is enough, the volatility is too much, and sidelined their capital. This wait and see attitude at this point in time comes with one advantage; the dollar is running well against other currencies. How our dollar became a safe haven play is beyond me and I think long term this could turn sour, however the point is investors are comfortable in cash right now, and that cash along with some positive gains in the stock market has not been kind to interest rates.
Even so, this is not the end of the world, and I fully believe interest rates are going to slide back down in the weeks ahead. We have the Fed and operation twist, selling short term debt and buying long term debt. This should help keep yields low despite some selling off (there is after all a buyer), and we cannot forget about the powder kegs set up throughout Europe, and best calculations on my part suggest it is about to get very interesting across the pond. BOOM! There goes Greece, powder keg one as they default and Europe scrambles in the chaos surely to ensue... Downgrades to follow (they would have to) from the rating agencies, forcing capital into safer markets... and then and there we should see an immediate snap in price up bringing yields and interest rates back down to super low levels... I honestly think we will see the 10 year treasury yield break below 1.5% this year, and will flirt potentially with 1.25% possibly even 1.00% into 2012. After all we still have four powder kegs left: Portugal, Italy, Ireland, and Spain.
If this doesn't happen it's because Europe and the U.S. will try and inflate (Quantitative Easing, Jobs Bills, Bailouts, Grants and Loans to Private Companies, Creative Accounting, etc... ) their way out of this mess declaring "it's too dangerous to do nothing... the world is ending... and in their typical rant and fashion. If this happens we'll see a surge in gold and silver prices, while other markets waffle under inflationary pressure. So go our low rates....
Inflation will ultimately be the death of these low rates, the question is when will the beast wake up.
To digress, I think when all is said and done, worldly events like the collapse of a currency or what have you don't play out as fast as one would expect them to... those in charge of the sinking ship are doing and will do everything possible to keep the status quo afloat. So time will pass, as it does, but eventually the ballasts will fill with water, and that will be that, no more pretending... at which time the beast of inflation will awaken and the world will be very different than the one we currently enjoy.
For now the charade continues and we'll press through the volatility securing lower and lower fixed rates, the best possible saber against that evil enemy know to be inflation. After all with a low fixed rate, your payment never changes, and in an economy ripe with inflation you should be able to easily meet you payment obligations with the dollar now worth nil.
So it is a ride to the bottom, wherever that bottom may be. Since we don't know the final stop, we have to secure lower rates as the market shifts down, simply waiting for what you think will be the basement floor rate may never come and there goes your opportunity... hence the step ladder down.
With rates at all time lows, this small hike up is not something we need be concerned with... the market will swing back down, the question is will you be in a position to take advantage of it when it does?
Even so, this is not the end of the world, and I fully believe interest rates are going to slide back down in the weeks ahead. We have the Fed and operation twist, selling short term debt and buying long term debt. This should help keep yields low despite some selling off (there is after all a buyer), and we cannot forget about the powder kegs set up throughout Europe, and best calculations on my part suggest it is about to get very interesting across the pond. BOOM! There goes Greece, powder keg one as they default and Europe scrambles in the chaos surely to ensue... Downgrades to follow (they would have to) from the rating agencies, forcing capital into safer markets... and then and there we should see an immediate snap in price up bringing yields and interest rates back down to super low levels... I honestly think we will see the 10 year treasury yield break below 1.5% this year, and will flirt potentially with 1.25% possibly even 1.00% into 2012. After all we still have four powder kegs left: Portugal, Italy, Ireland, and Spain.
If this doesn't happen it's because Europe and the U.S. will try and inflate (Quantitative Easing, Jobs Bills, Bailouts, Grants and Loans to Private Companies, Creative Accounting, etc... ) their way out of this mess declaring "it's too dangerous to do nothing... the world is ending... and in their typical rant and fashion. If this happens we'll see a surge in gold and silver prices, while other markets waffle under inflationary pressure. So go our low rates....
Inflation will ultimately be the death of these low rates, the question is when will the beast wake up.
To digress, I think when all is said and done, worldly events like the collapse of a currency or what have you don't play out as fast as one would expect them to... those in charge of the sinking ship are doing and will do everything possible to keep the status quo afloat. So time will pass, as it does, but eventually the ballasts will fill with water, and that will be that, no more pretending... at which time the beast of inflation will awaken and the world will be very different than the one we currently enjoy.
For now the charade continues and we'll press through the volatility securing lower and lower fixed rates, the best possible saber against that evil enemy know to be inflation. After all with a low fixed rate, your payment never changes, and in an economy ripe with inflation you should be able to easily meet you payment obligations with the dollar now worth nil.
So it is a ride to the bottom, wherever that bottom may be. Since we don't know the final stop, we have to secure lower rates as the market shifts down, simply waiting for what you think will be the basement floor rate may never come and there goes your opportunity... hence the step ladder down.
With rates at all time lows, this small hike up is not something we need be concerned with... the market will swing back down, the question is will you be in a position to take advantage of it when it does?
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