Mortgage Market Update (part III)

Initial Jobless Claims continue to worsen as 542,000 filed this past week, far more than the 503,000 that was expected and the highest in 16 years. The four-week average of initial claims climbed by 15,750 to 506,500, the highest since January 1983. While the numbers are ugly, comparing them to previous markers is a bit unfair because there are more people today.

At 10am ET, the Philly Fed Index will be reported and while this may influence pricing in a typical market, we don't expect it to reverse the course of Mortgage Bonds.

Prices have barely peaked above the 200-day Moving Average. We will continue to float, but be mindful that things can change quickly. And a reminder about 2003, when Alan Greenspan came back and later said there is no threat of deflation - the refi-boom quickly ended and rates shot up dramatically higher. Stay tuned - we are living history.

Mortgage Market Update for this week

MMG Update - Thursday, November 20, 2008 9:35am ET

Current Trend Direction: Sideways along 200-Day Moving Average for 13th consecutive session

Risks favor: Carefully Floating

Current Price of FNMA 6% Bond: $101.41, +16bp

Over the years, MMG has continued to help the mortgage community discover and understand the disconnect between the 10-year Note and Mortgage Bonds. In recent times that disconnect has been very clear to anyone in our world - but in the past 24 hours, the disconnect has been dramatic. Since yesterday the 10-year Note has risen by 285bp, while Mortgage Bonds have risen 12bp!!! Do you think the media knows this? NO. Use this to inform your relationship partners and clients of what really drives fixed rate mortgages.

So what happened? Yesterday the Fed Minutes from the October Fed Meeting were released. The Minutes expressed concern over the health of the economy and their future targets for employment and growth were lowered. But the big news was the "D" word. The Fed, after years of being concerned with inflation, now say they are concerned about deflation. This news shocked the financial markets, pushing Stocks sharply lower while directing enormous money flow into ultra-safe Treasury Notes.

(the story continues tomorrow...)

Morgage Update: Stocks and Bonds

The recent euphoria in the Stock market continues, and the word in the trading pits is that perhaps the credit crunch is over. Today, we are hearing about more financial institutions raising capital, and this time it is Washington Mutual saying that it has investors injecting $5 Billion in cash. Traders are reading the recent investments and capital raising in the financial sector as a sign that the worst days of the credit crisis may be in the rear view mirror. As a result, Stocks overall are trading higher, and as money flows out of Bonds and into Stocks, this is hurting Bond prices a bit this morning.

Today kicks off the beginning of earnings season for Stocks, which may have the potential to add to the euphoria or change the mood to a negative one depending on the results. With the scent of recession in the air, the quality of corporate earnings and especially future guidance will largely influence the direction of both Stocks and Bonds in the coming days. If corporate earnings are reported weaker than expected, Stocks may come off the happy gas and head lower, which would provide a boost to Bonds.

Mortgage Bonds, while trading lower, are improved from the worst levels seen earlier in the day. Additionally, prices remain well above support at the 50-day Moving Average. For now, we will continue to Float and give Bonds a chance to further improve - but be ready to Lock your mortgage rate if things turn sour.

MMG Update - Tuesday, October 2, 2007 10:36am ET
Current Trend Direction: Sideways
Risks favor: Floating
Current Price of FNMA 6.0% Bond: $100.16, -6bp
Yesterday, Mortgage Bonds bounced off of support at the 200-day Moving Average and while prices did finish the day higher, the advance was stopped at the 25-day MA resistance level. This morning, Mortgage Bonds are trading slightly lower and are now directly between these moving averages.
Stocks are trying to find some direction today after the Dow closed at an all-time high yesterday and above the 14,000 level. Should Stocks continue to move higher, it may be at the expense of Bonds, but it is not likely Bond prices will fall below the 200-day Moving Average in advance of Friday's important Jobs Report.
Housing news - the Pending Home Sales Index for August reported a -6.5% drop in sales, which was lower than expectations of a -2.0% drop in sales, but not nearly as bad as July’s dismal showing of a -10.7%. The Pending Home Sales Index is reported by the National Association of Realtors as a leading indicator of existing home sales. Mortgage Bonds ticked slightly higher on the weak news.
Dallas Federal Reserve President Richard “Loose Lips” Fisher is scheduled to speak in Dallas , Texas at 1:35pm ET. A Q&A session is expected to follow the speech so bond traders will be listening closely as Mr. Fisher has been known to rifle off remarks that could impact the market.
Mortgage Bonds continue to trade above the 200-day Moving Average and we will continue to float as long as prices remain above this floor.

Mortgage Bonds are unchanged

Mortgage Bonds are unchanged after being pressured lower yesterday. Bond Traders took some of their recent profits following an uneventful speech by Federal Reserve Chairman Ben Bernanke, as he did not give any hints about a rate cut.
Also weighing on bond prices yesterday was a strong showing in the stock market. In sessions when there has been an absence of market-moving economic news, as has happened recently, Stocks and Bonds have traded in opposite directions. Yesterday Stocks bounced back to the upside and Bonds were sold. With no major economic news to grace the airwaves again today, we could see Bond prices once again engage in a little tug of war with Stocks.
Bonds remain overbought and appear poised to follow the path of least resistance lower. However, should Stocks stumble in this lean news environment, any selling of Bonds could be tempered.

Mortgage Bond are flat

"Mortgage Bonds are flat after yesterday's rally, but now Traders are looking ahead to tomorrow's important Jobs Report.
Current estimates are for 110,000 new jobs created; however, if the number is much worse than expected, we will probably see bonds improve. But any rally may be tempered, since many Traders may already be factoring in a miss.
If the number comes in stronger than expected--which I don't think will happen, but if it does--Bonds will drop sharply, causing home loan rates to rise.
I feel the prudent play is to be conservative and Lock ahead of the Jobs Report."