Greetings from down under this morning, Brazil that is. Yes, I was off the cruise ship and right to work yesterday with little time to “catch up” on what I had been missing last week so this morning’s update is delayed slightly while I went through literally thousands of emails and thousands more RSS feeds. Mortgage backed securities will not have to sift through that much data. In fact, data wise, they will be virtually taking the week off.
I may miss rehashing some of the news that drove the week, but if you look at the charts, that retracement I was talking about last week certainly happened, and bonds came awfully close to their July lows before it did. Do we still have more of a retracement to go? Can bonds manage to renew their vigor and send mortgage rates lower? Will the Wile E. Coyote finally catch the Road Runner?
The week certainly started off with some news and that was good ole Sheila Blair (FDIC Chairman), Ben Bernanke, and of course, Henry Paulso, making the announcement that they will implementing $250 billion of the $700 billion bailout and giving it directly to American banks. They decided to become “investors” in Bank of America, JPMorgan Chase, Citigroup, and some other large banks. So much for the little guy.
Data was largely placed on a back burner as emotions continue to take center stage. Retail Sales presented their biggest drop in 3 years. CPI came in lower than expected on both fronts and Initial Jobless Claims were only slightly better than expected. New Home Sales hit the lowest level since January 1991 as Building permits hit a 27-year low as well. All in all, data was bond friendly throughout the week and aided in the retracement.
What lies ahead for MBS and mortgage rates? This week will be a rather slow one from a data perspective, with no major players scheduled to be released. That puts a lot of pressure on bonds to follow chart patterns and let’s them continue to flow easily with the market “mood swings”. Here is what little data is in store…
- Monday: LEI (10:00)
- Tuesday: no data
- Wednesday: Crude Inventories (10:30)
- Thursday: Initial Jobless Claims (8:30)
- Friday: Existing Home Sales (10:00)
Since data is almost certainly not going to impact the markets, let’s get into what the charts show. Just as expected, as is the case of any large move downward (or upward), we saw a move higher, retracing some of the losses of the prior week, providing that brief period of “floating” I mentioned in last week’s report. Currently, mortgage bonds are pushing higher and we may have some more room to squeak out lower rates. Chances are, that move higher will come to an end soon and bonds will fall back, sending mortgage rates higher once again, possibly even higher than what we have seen so far this year.
The “picture” can change quickly when emotions get stirred up, but the picture clearly shows a retracement pattern occurring, likely ending soon, and the overall trend points to higher mortgage rates for the future. With no data, absent any major news to change the pattern, odds are to cautiously float and be ready to change to a locking stance again once bonds resume their downtrend.
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{ 10 comments… read them below or add one }
I think maybe the next big trigger for the markets is probably going to be election day. If the Democrats sweep Congress and Obama wins, there’s a lot of pain in store for the banks.
Robert thanks for the info I guess we can all hope for lower rates and it looks like that is going to happen todya but long term I still think we need to buckle up
The mortgage crisis facing America is daunting but I think it begins with holding those responsible accountable. There is nothing worse than tricking people into believing they can afford a $300,000 home when in reality they can afford a $100,000 home.
I believe the American Dream is under attack but that there is hope. My hope is that the next administration, whoever it may be, will address these issues.
Thank you for your article.
Well written post about the current situation in the mortgage market. I do look forward to seeing the lower rates.
I would be intersted to know what might be the effect of the expected Obama win? I have not read anything about this (Yet) Why should there be pain for the banks? What are you expecting? It affects us all.
There is a benefit to all the “bad news”, “more bad news” and a “lot more bad news” – people will eventually grow numb of it and markets will find it’s bottom (if they haven’t already). In such environment, any glimmer of good news will lift the moods considerably. Also, look out for news on next stimulus package that is in works as endorsed by Bernake and urged by Democrats and Obama pushing for new stimulus to be implemented before new administration takes over (see Bloomberg article). But do not hope for lower mortgage rates just yet. So far bailout plan=higher mortgage rates (see article here)
Mortgage Jack wrote:
>In such environment, any glimmer of good news will lift the moods considerably.
Just yesterday I heard the market went up 400 points and CA Real estate sales were way up 65%. I thought wow some really positive news. I latter found out the reporting left out the fact whil number of CVA sales were way up prices were down 35%
Ned Carey
I own a check processing company called Green By Phone, and have been seeing a turn towards loan “re-organization.” I see a lot of problems in our future, but I also see some good times ahead in different ways. Is it possible that by reorganizing loans we can affectively turn a bad situation around? Maybe if we give a break to the people who have the high interest rate loans they may just be able to afford their overpriced homes… maybe?
Ugh. I thought rates were high enough already. I cant believe how fast they have risen over the last month.
This high mortgage rates is not good news. More and more homeowners will be facing foreclosures if this will continue to soar high. It would help if they would seek out an expert’s advice and work with them to re-structure their loans. The current economic situation is quite depressing, but we can hope for the best and hold on.