There are days like this that I do not know if I am coming are going, or even where I am right now, having just gotten back from another all-night flight. Mortgage backed securities seem to be feeling much the same way as they get unfavorable data and head lower, then data comes in favorable and they manage to rally again.
Last week, I discussed we would have to take things day-by-day again as data flowed, though it appeared the downtrend would likely continue. And just as I wrote, the correction seemed to be over and a resumption of that downtrend beginning, then came some good data and mortgage bonds managed to find renewed strength and tested their 200-day moving average, though the week ended with that strength in question.
The key player in the renewed strength is the fact inflation remains low based on recent data. Combine that fact with the Retail Sales numbers and you can see why mortgage rates are dropping. The Treasury Auctions were mixed last week, but the 30-year’s worst issue was really the fact yields climbed but traders saw the “good” as that yield was below expectations. With the Fed indicating the Fed Funds Rate would remain low for an extended period, the tame inflation seems to back their decisions up still. Consumer Sentiment was well below expectations, also backing up the fact that the economic recovery remains uncertain, at least in the eyes of the consumer, which is whom needs to get this economy going.
With mortgage backed securities prices back on the rise, will lower mortgage rates again be in our future? Can they hold their own and at least trade in a relatively sideways trading pattern?
This week may help determine some of those answers as we have a few economic reports that can impact the markets, and even some of the moderate reports may affect the markets more than normal as traders are looking for their “edge”. Here is the quick rundown of this week’s activity…
- Monday: Empire State 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), Building Permits (8:30), Producer Price Index (PPI – 8:30), 4-week T-Bill Auction (1:00)
- Wednesday: MBA Purchase Applications (7:00), Crude Inventories (10:30)
- Thursday: Jobless Claims (8:30), Leading Indicators (10:00), Philadelphia Fed Survey (10:00), Treasury Announcements (11:00), Money Supply (4:30)
- Friday: Existing Home Sales (10:00), Ben Bernanke Speech (10:00)
As you can see, the data this week is fairly light in volume, though a few key players, namely the Philadelphia Fed Survey, will add to market direction. Additionally, with many thinking the housing market is improving, the housing data may affect the markets more than normal, especially if they miss their expectations. The light volume also leaves technical factors in more control this week, than in recent weeks.
Speaking of technical indications, we see stochastics have been showing positive signs the last few trading days and still have some room for improvement. Some negative indications are the fact the 10-day moving average (MA) is touching the 50-day MA and that the 25-day MA fell below the 40-day MA. We also see the 100-day MA continues to fall and that will likely become the major factor in whether or not mortgage rates will be able to drive lower and break their long term downtrend. With the data already released today, MBS pricing jumped above the 200-day MA and will add to the positive outlook if they hold, meaning they will likely take a shot at breaking through that 100-day MA ceiling once again.
This week will be another day-by-day market play as we approach an interesting testing point for mortgage bonds. In the short term, MBS prices continue to have strength, but the question is whether or not they will be able to break the long term downtrend’s back by busting through their 100-day MA.
This is great information, thanks!
Oil, Stocks, rates are down. September is coming.
There seems to be some signs of money coming back into circulation but banks have definitely learnt a lesson about playing loose and fast with their reserves. Within the UK many of the banks have had to be nationalised and Lloyds are considering whether or not to close the doors on the troubled Cheltenham & Gloucester.
Great Post, very informative. I am a Dallas Realtor and I believe the market is turning around. I just hope that Lenders will be more cautious when lending money.
Its a time to invest and i think coming next time will be a great season
I agree with what others are saying….it is great that things are “looking up,” but I am concerned about the long-term still.
Hi,
I am not sure if I should buy a Condo or Home in Iowa city.
Looking for help.
Thank you.
Great Post! I know a lot of people agree with caryncrealestate. I have a couple buyers here in Dallas, going back & forth as to whether or not they should buy a home or continue renting, even though its a buyers market now.
Hi Max,
I am a Realtor from Iowa City. I have information that you should read about the Pros & Cons of buying a Condo vs. Home.
http://www.michaelmceleney.com/custom3.shtml
Please let me know if this helps.
Great article, I think that this is going to be a slow process, but over time it will turn itself around. Before we know it, I think we will all be looking at this downturn and wondering why we were so nervous. At worst, we will be able to learn from this when planning for the future.