10.09.2009

RATE ALERT!

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Current Market:

 

  • 10-year TSY 3.33% (+9 bps)
  • MBS  -14/32 or -30bps
  • DOW + 24 points
  • S&P +   2 points
  • NAS  + 9 points

Economic Calendar: 

8:30 Aug trade deficit ($33B) – Improved.

Market Commentary:

As we alerted you in our pre-market edition, the treasuries and MBS sell-off continues this morning. In fact, you are now likely to lose another .250% in pricing as a result of this mornings trading. The 10-year is at 3.33% and all MBS well into the red- far enough to pass along .250 (On top of the .125 pre-market worsening) for a total of .375 price worsening this morning. Price worsening is equal across Conv and Govie at the moment. Total price worsening at .500% to .625% since the 30-year auction.

No news is driving the worsening this morning, rather just a continuation of the sell-off and a reversion to the range (upper level) after being way overbought on bonds- which we have been warning about for the past few days. 

Pricing ConditionsNegative

We are negative on near-term pricing at the moment since the stock markets are also showing strength and the 10-year TSY /MBS appear to be testing a breakout of near-term resistance (more in the technical’s section below). If the stock markets level off here, we could pause on bond worsening, but if stock markets continue to forge ahead, we are heading into worse mortgage pricing in the near-term. Volatility levels still fairly low and price movements should not be large in that environment… currently we don’t see moving more than a .250% in points either way intraday at this current range… although already this morning we are edging toward .375 price worsening.

Float/Lock Recommendation: Lock. 

Lots of reasons to continue our lock bias:

  • 10-year still floating around a technical breakout to the upside
  • Stock market strength still forecasting an increase in bond yields/mortgage pricing
  • Jobless claims better than expected
  • Corporations continue to beat Q3 earnings estimates
  • Retailers continue reporting better than expected earnings and giving better Q4 guidance
  • While MBS have sold-off in the last 24 hours, we are still at historical high prices.

We still see this as a great opportunity for you and consumers to take advantage of attractive historical mortgage pricing. We would see an opportunity to float for better pricing if the 10-year could would pause at 3.32% with a weakening stock market and trade back under 3.28%. However, at this hour, this does not appear to be the trend.

This is the best pricing you have seen since May on the 30-year fixed and the best ever historical pricing on the 15-year fixed. We continue to hold a bias toward locking, unless we would see more negative economic news that would spur a flight to bonds.

If you decide to continue to float, you are betting on a pullback in the stock markets and Q3 corporate earnings to come in under estimates and disappointing investors. Stay close to our alerts if you are still floating.

The Technical’s:

The overall trend still remains constructive and bullish for historical mortgage pricing and the very positive mortgage pricing environment remains in tact. We are, however, now testing 3.32% resistance on the 10-year TSY and if the stock market continues gaining, we could easily jump to 3.45% level on the 10-year treasury relatively quickly. 

One could even make these case that at these levels on the stock markets, the 10-year could trade up at 3.70%+…this is something to keep an eye on. We don’t see that drastic of a move soon given the amount of Fed and Asian purchasers still showing up to buy bonds and it appears the individual investors are dipping their toes back out of cash and into bonds first..

The bond markets are taking their queue from stocks and moreover, the US dollar for now. As the dollar has declined, stocks and commodities have risen, and bonds have sold off (yields and mortgage rates rising) – repeated that price action today. The dollar is testing 14 month lows and will likely give up quite a fight before it breaks through. That means that stocks and bond yields could stall in a fairly tight range here while pausing to see how the dollar story plays out. Today stocks are slightly up and the dollar is slightly up at the same time… something to watch.

We are watching the 10-year treasury closely at 3.32%. There is price resistance and 20 day moving average resistance. If the 10-year breaks above 3.32%- the next resistance level is the 50 day moving average at 3.45%. We would turn short-term bullish on mortgage pricing f the stock markets pulled back and the 10-year fell back into the range of 3.22% to 3.28%.

We are also watching the S&P and it breaks out of the 1,064 to 1,072 level, we could see another leg up on stocks and further mortgage price worsening. If the S&P breaks out the 1,072+, we could see a major back-up in bond yields and mortgage pricing increases.

 

 

Thanks,

 

 

Peter Bright,

Branch Manager

Capital City Mortgage Investments, Inc.

Serving Georgia since 1992!

Licensed by the Georgia Department of Banking and Finance.
Georgia Mortgage Residential Licensee, License #
7064
www.ATLRATES.com

 

404-643-4793 Direct

404-671-9565 Efax

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