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Mortgage Market Update

I had a great weekend in Bolivia, having been able to just relax for a change while.  Unfortunately, I had to fly all night to get back.  The whole trip was uneventful and actually went even better than expected both ways.  Unfortunately, the same may not be said for the mortgage markets.

Looking back over the last week, we had some interesting moves.  With news of better than expected earnings within the financial institutions, along with data that seemed to remain favorable for economic recovery, minus a couple of reports in the housing sector, mortgage bonds fell under market pressures once again.  While mortgage rates managed to remain fairly steady, having ended the week roughly where they began, some important technical factors appear to be failing and what appears to be a slow downtrend has formed. 

The data that played out last week showed inflation remaining in check, though the core levels are not showing the deflation once talked about.  The only favorable report was that of Retail Sales missing expectations, which managed to keep MBS pricing above their 25-day moving average support layer.  Housing Starts and Building Permits fell and quenched some of the hopes of a recovering housing market.  And the Empire State Index and Philadelphia Fed Index both beat expectations, signaling that the economy, while still contracting, is not as bad as expected.  Mortgage bond pricing succumbed to pressures as the week drew to a close and fell below their support.

As the week begins, we are seeing a poorly performing stock market today, which is providing a little comeback for mortgage backed securities.  However, MBS pricing has failed to get up to their 25-day moving average and hold.  It appears that more favorable data, or at least a huge MBS purchasing spree by the Fed, will be required if mortgage rates are to go any lower.  Those “media promised” mortgage rates are not likely to become reality, especially with no major players in the data schedule.  Here is this week’s breakdown:

  • Monday:  Charles Evans Speech (9:00), Leading Economic Indicators (LEI) (10:00), Charles Evans Speech (10:00), 3-Month T-Bill Auction (1:00), 6-Month T-Bill Auction (1:00), Donald Kohn Speech (7:30)
  • Tuesday:  Tom Hoenig Speech (10:00), 4-week T-Bill Auction (1:00)
  • Wednesday:  MBA Purchase Applications (7:00), Crude Inventories (10:30)
  • Thursday:  Jobless Claims (8:30), Existing Home Sales (10:00), 5-year TIPS Auction (1:00), Money Supply (4:30)
  • Friday:  Durable Goods Orders (8:30), New Home Sales (10:00)

Once again, this week does not hold much that will typically move the markets, so technical indications, news, and Fed actions will dictate the week’s movements.  With mortgage bonds below their 25-day moving average, don’t expect rates to drop, with odds favoring a slight increase this week.  More support is just below their current levels and will likely be put to the test.  With the Fed cutting back a bit on their MBS purchasing last week, unless they step it up again you can expect the charts to hold true.  Looking at Stochastic Indications, we appear to be heading quickly toward the oversold spectrum, though it looks like we still have a ways to go before pricing will level out again.

The bottom line for this week is that mortgage rates will likely remain fairly steady as MBS pricing tries to set up a solid pattern, though seeing mortgage rates edge slightly higher may be seen as well.  As I have said before, I do not expect mortgage rates to be heading any lower, at least for the foreseeable future and without something major happening.

April 20, 2009 by · Leave a Comment

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