Mortgage Market Update

Happy Monday morning everyone.  As is fairly typical, I am writing this after being up all night doing that “other” job, and last night’s ride home was just as bumpy as the mortgage markets have been lately.  And yet, there were some smooth parts, just like is currently happening in the MBS pricing as well.

Looking back over the last week, we got that much needed bounce finally, and it looks like it will continue this week, likely running all the way up to the 200-day moving average.  It will be assisted by a lack of added supply flooding the markets in the form of Treasuries, and may even get a boost from some data.  While you can say this or that caused MBS pricing to rebound last week, it doesn’t matter as significantly as the simple fact mortgage backed securities were oversold and any dramatic move has to have a rebound to maintain its trend’s balance.  Some key points to note, however, were the average auction results on the 10-year and the better than expected performance on the 30-year auction.    Couple that with Retail Sales, Jobless Claims, Consumer Sentiment, etc. and we had a fairly mixed bag of data, so technicals won the week.

Moving forward, we can see that the correction has broken through resistance and can now make an attack on the 200-day moving average, so if you have any loans that are “floating”, here is your opportunity to be a hero, however brief that opportunity may be.  Here is how the week stacks up…

• Monday:  Charles Evans Speech (8:00), Empire State Manufacturing Index (8:30), Housing Market Index (1:00), 3-month T-Bill Auction (1:00), 6-month T-Bill Auction (1:00)
• Tuesday:  Housing Starts (8:30), Producer Price Index (8:30), Industrial Production (9:15), 4-week T-Bill Auction (1:00)
• Wednesday:  Ben Bernanke Speech, MBA Purchase Applications (7:00), Consumer Price Index (8:30), Crude Inventories (10:30)
• Thursday:  Jobless Claims (8:30), Leading Indicators (10:00), Philadelphia Fed Survey (10:00), Treasury Announcements (11:00)
• Friday:  No data, but it is a quadruple witching day

The good news for this week is a lack of Treasury Auctions, but the Treasury Announcements on Thursday may spook the markets nonetheless.  And unlike last week, there is quite a load of data that will be hitting the airwaves and inflation will be at the forefront.  With energy prices spiking recently, along with some dollar weakness, don’t be surprised if we start seeing inflation creeping higher in these reports.  Of course, if it does, watch out mortgage rates.

Getting back to the chats, the overall downtrend is still firmly in place and the recent gains we see remain apparent solely as a market correction, or retracement.  Once that move has completed, expect mortgage rates to be back on the rise.  Stochastic indications are now positive for the move and are moving out of the oversold spectrum, which will offer the opportunity to end the correction.  My analysis can be summed up by this…Mortgage rates will improve some early this week as MBS pricing moves up to its 200-day moving average, then mortgage rates will be on the rise again and all that may happen today.