Mortgage Market Update

Greetings from Santiago, Chile this morning, though this post was actually written mostly over Cuba last night.  Speaking of Cuba, there is talk around the internet about the Fannie Mae/Freddie Mac takeover, excuse me, “conservatorship”, being another step toward socialism in America.

Who could forget how the week got started with the news of another government bailout, this time making the government the lender of first choice for about 80% of all mortgages out there.  The good news was that traders went nuts initially, gobbling up mortgage backed securities and sending those prices sky high, climbing 150+ basis points Monday before the retracement kicked in.  That of course, sent mortgage rates considerably lower.

But as the week progressed, the charts kicked in again and bonds were unable to sustain that rally and as the week ended, even favorable news couldn’t get bonds back into a rally mode.  Overall, mortgage rates improved only slightly from where they were last week.

As we get started this week, we will see data flow and inflation will be back in the spotlight on Tuesday.  The big event will definitely be the FOMC Meeting and their next decision to leave rates unchanged (that is the consensus), and that decision is scheduled for Tuesday as well.  More data on housing and the economy will be hitting the airwaves as well, so you can expect that a more normal trading week lies ahead.

Here is the scheduled data:

• Monday:  Empire State Index (8:30), Capacity Utilization (9:15), Industrial Production (9:15)
• Tuesday:  CPI (8:30), FOMC Meeting (2:15)
• Wednesday:  Housing Starts (8:30), Building Permits (8:30), Crude Inventories (10:30)
• Thursday:  Initial Jobless Claims (8:30), Philadelphia Fed Index (10:00), LEI (10:00)
• Friday:  No data

On the technical side of things, the charts still show mortgage bonds heading higher over time, which means lower rates remain ahead.  Stochastic indications still indicate overbought, but they are not in the “warning zone” as I like to call it.  With another moving average crossover set to take place, floating is likely the mode to be in for the week, that is unless something hits the airwaves to let the air out of bonds’ kite.

Update: Rather than rewrite the whole I wanted to provide a brief report on the markets as they opened today now that I am at the hotel.  The markets gapped higher at the open on the heels of Lehman filing for bankruptcy (another Fed bailout in the works?), Bank of America buying Merrill Lynch and oil prices falling even more.  With the market up 69bp already, just watch for a retracement.  Oh, and speaking of socialism, Hugo Chavez is staying at my hotel, yeah.