Mortgage Market Update

Let me first say that it is good to be back here on Lenderama after the last few months of changes here.  I like the new style and hope you guys do as well.  Nevertheless, enough of the crap and let’s get down to why you are really here, shall we.

Last week saw mortgage backed securities display weakness despite of favorable data, keeping the status quo so to speak.  We saw the Fed keep their rates the same and their comments on the economy were essentially unchanged.  The noticeable change was in the job market where their message switched from a deteriorating state to one that is stabilizing.  And the week ended with the Treasury Announcements and set MBS prices into the tailspin that started Thursday and kept going on Friday.

This week will continue to be about the Treasuries as those announcements will become auction this week and the results will help dictate the direction of mortgage rates.  We will also see several Feds speaking and will end with some more data that could shape the markets.  Take a look at what is on the docket this week…

  • Monday:  3-month T-Bill Auction (11:30), 6-month T-Bill Auction (11:30), Dennis Lockhart Speaks (3:45)
  • Tuesday:  Existing Home Sales (10:00), FHFA House Price Index (10:00), 4-week T-Bill Auction (11:30), 2-year T-Note Auction (1:00), Janet Yellen Speaks (3:00)
  • Wednesday:  MBA Purchase Applications (7:00), Durable Goods Orders (8:30), New Home Sales (10:00), Crude Inventories (10:30), Tom Hoenig Speaks (10:45), 5-year T-Note Auction (1:00)
  • Thursday:  Jobless Claims (8:30), Sandra Pianalto Speaks (9:10), 7-year T-Note Auction (1:00), Money Supply (4:30)
  • Friday:  GDP (8:30), Consumer Sentiment (9:55), Kevin Warsh Speaks (11:30)

As you can see, there are no major players in data, but some could ruffle a few feathers.  You can bet that MBS traders will be watching the Treasury Auctions, especially the longer-term ones, and any disappointing results are sure to weigh heavy on MBS prices, and thus mortgage rates.

Looking at the charts, we see that the future is still uncertain, but that the best we likely can hope for is a sideways trading pattern.  Stochastic indications are still fairly high with a negative crossover, meaning there is plenty of momentum to fall building up.  MBS prices have dropped below their 25-day moving average (MA) and even went briefly below their 50-day MA before bouncing back to close 2 basis points above that level.  The 10-day MA crossed below the 100-day MA and is set to negatively cross the 25-day if MBS prices cannot rebound.  The odds favor MBS prices to fall from here, so play it safe, though hope is not entirely lost.

The bottom line this week is expect mortgage rates to rise more unless they can mount an immediate rally as the week begins.  The momentum is surely pointed towards mortgage rates continuing higher, though the future is not etched in stone.

(Side note: My daily commentary is still available at Florida Mortgage Daily, though I started a new website at MBS Commentary as well.)