Mortgage Market Update

It never ceases to amaze me how fast time flies and the Mortgage Market Update is coming up on its 2 year anniversary here at Lenderama.  To think it all started with me blogging about where mortgage rates were headed for my clients over 4 years ago, which also happened to be my very first blog.  Now, it appears we may be ending the era of the lowest mortgage rates, though we may yet revisit them if hell breaks lose on the economy again.

Last week, I ended the Mortgage Market Update with the following statement…

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).

As the week drew to a close, the sideways pattern had become nearly impossible to develop and the trend favors the next leg downward in mortgage backed securities pricing, or simply higher mortgage rates.  We saw Retail Sales come in better than expected, the CPI slightly higher than expected, the Philly Fed slightly below expectations, and Consumer Sentiment dropping.  Clearly, inflation is becoming a greater concern in the minds of MBS traders and the fact the Fed has begun to “back down” certainly is not helping mortgage bond pricing, and thus mortgage rates ended the week slightly higher than when they began despite the end of the week rally.

The week ahead is may prove to be a tough one despite the lack of major data plays.  The main focus will be on the housing market, though some data on the economy will be seen as well.  The week will be certainly not be lacking in speeches by the Feds trying to talk up the markets, and we will see more Treasury Auction Announcements that could pressure MBS pricing with the added supply.  Here is the rundown of currently scheduled events…

• Monday:  Ben Bernanke Speaks (11:00), Thomas Hoenig Speaks (12:20), Housing Market Index (1:00), 3-month T-Bill Auction (1:00), 6-month T-Bill Auction (1:00), Donald Kohn Speaks (4:30)
• Tuesday:  Housing Starts (8:30), Producer Price Index (8:30), 4-week T-Bill Auction (1:00), 52-week T-Bill Auction (1:00), Christina Romer Speaks (6:00), Charles Plosser Speaks (8:00)
• Wednesday:  MBA Purchase Applications (7:00), Crude Inventories (10:30), Daniel Tarullo Speaks (1:00), Beige Book (2:00), Jeffrey Lacker Speaks (3:45), Eric Rosengren Speaks (4:30)
• Thursday:  Jobless Claims (8:30), Leading Indicators (10:00), Eric Rosengren Speaks (10:30), Treasury Announcements (11:00), William Dudley Speaks (1:30), Charles Evans Speaks (4:00), Money Supply (4:30)
• Friday:  Ben Bernanke Speaks (8:30), Existing Home Sales (10:00), Donald Kohn Speaks (11:30)

The week is certainly light on data, but not the Feds providing their thoughts.  With the latest FOMC Minutes showing dissention among the ranks regarding monetary policy, this week may get interesting just with the various speeches taking place.  As I said before, there are no major data plays which leaves technical indications in the drivers seat, so let’s look at the charts.

While we cannot completely rule out a sideways trading pattern, the recent lows in MBS pricing were below the tops of the last pattern, thus this latest move is likely the beginning of a downtrend, even though a correction may appear to break back into the previous pattern.  Stochastic indications show mortgage bonds to be somewhat oversold and in need of a move higher, and indeed we may see that move this week as a retracement needs to be seen, likely at least to the 25-day, or even the 10-day, moving average.  Beyond that corrective move, the charts favor the next leg lower.

The bottom line for this week is that there will be a chance to gain lower mortgage rates for a brief period, though do not expect to see them get back to recent lows.  Take advantage of the move, but be ready for the next leg of mortgage rates moving higher.