Once again, I am writing after just an hour or so of rest due to my all-nighter back from Brasil, which I will do again next week. As you may have guessed, I prefer to do my flying on the weekends for obvious reasons. And speaking of weekends, the mortgage markets get an extended one as the markets are closed today in observance of Columbus Day, and that means volatility may be on the way.
Last week was light on economic data, but heavy on Treasury Auctions. While almost all of the auctions went well, the 30-year Treasury Bond, or T-Bond, did not do so well and that started the concerns. If you follow my daily updates at Florida Mortgage Daily, you know I changed to a locking stance Friday morning as I did not like the way the charts were beginning to look. By the end of Friday, guess what had happened? Yes, mortgage backed securities had plummeted 59 basis points, essentially all the way back to their 25-day moving average. With the monthly bond rollover effect, the charts show them down 91 basis points and below that important level. Big Ben Bernanke was talking about inflation and the rising stock market all helped to let the air out of the MBS rally.
This week will be a shortened one due to the holiday and that could add to the volatility as I mentioned before. With stocks seemingly wanting to at least test the DOW 10,000 level, that could add to the downward pressures mortgage bonds have been feeling. Economic data will again be picking up as we will see a couple of market movers, such as Retail Sales and Consumer Price Index. With Big Ben’s talk about inflation, the CPI data will likely play an even larger role than normal. Here is this week’s current schedule…
- Monday: Happy Columbus Day
- Tuesday: Christina Romer Speaks (7:30), Donald Kohn Speaks (12:00), 3-month T-Bill Auction (1:00), 6-month T-Bill Auction (1:00), William Dudley Speaks (1:15)
- Wednesday: MBA Purchase Applications (7:00), Retail Sales (8:30), 4-week T-Bill Auction (1:00), FOMC Minutes (2:00)
- Thursday: Consumer Price Index (8:30), Jobless Claims (8:30), Empire State Manufacturing Survey (8:30), Philadelphia Fed Survey (10:00), Crude Inventories (11:00)
- Friday: Industrial Production (9:15), Consumer Sentiment (9:55), Richard Fisher Speaks (10:15)
As you can see, there is not a lot of data forthcoming, though there are some market movers on the way and that, along with the potential volatility of a shortened trading week, means added caution is needed.
Looking at the charts, we see that the short-term uptrend was broken and that means the best we can hope for is a sideways trading pattern, which may play out. We are currently sitting at the bottom level of this potential pattern and with a large move lower on Friday, the potential for a bounce to keep us in this pattern is available. Unfortunately, stochastic indications are not pointing toward that bounce, at least not yet, and that means this pattern may fail to develop. The reality is that the charts point more toward the pattern failing than towards its success, which means mortgage rates may have bottomed out and are heading higher.
The bottom line for this week is that hopefully you already locked your loans. If not, chances are you missed the boat. The remainder of this week will be a determining one and will show the development of a new sideways trading pattern, or the likely development of the next downtrend in MBS prices (higher mortgage rates).
