Treasury Sees Another Weak Auction as Supply Issues Loom

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The market has twenty trading sessions before the cessation of the MBS purchase program.  Traders believe that mortgage rates should increase, most noticeably in the lower coupon, current production area. At this point, besides the Fed, traders are not seeing much buying outside of some hedge funds and money managers for current coupon product. There was some hope that with the agencies buying delinquent mortgages out of pools, demand would pick up, but so far they have seen little interest in spite of the ultra-clean current production. Possibly their reinvestment decisions are now going to coincide with the end of the fed program. Much of this community is concerned with higher yields because of this and the overall macro environment. (Crisman Report 3-4)

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They are going up!!!

http://www.marketwatch.com/story/bernanke-exit-timing-to-depend-on-data-2010-02-10-120120

The Fed could increase the interest paid on excess bank reserves to sop up “extra” cash out there, which may have more of an impact than raising the overnight Fed Funds rate. Not only are investors wondering about another extension (not likely) of the MBS purchase program, but also when the Fed might decide to start selling MBS’s from their portfolio… this would pull money out of the economy and shrink the Fed’s $2.2 trillion balance sheet, helping to avoid inflation and getting the Fed out of the business of subsidizing mortgages, but also push mortgage rates higher. (Crisman Report 2-10)

Also:

“Refinances in 2010 will be down 52% and purchase mortgage volume will be down 5%
from 2009, according to the latest projections from iEmergent, a Des Moines,
Iowa-based market research firm.” (National Mortgage News)

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It’s happened twice like that already since Memorial Day.

If you’re not locked in to a mortgage rate yet, keep a watchful eye on the markets

Last week Mortgage markets improved on weaker-than-expected data and a neither-good-nor-bad statement from the Federal Reserve.

Mortgage rates regained most of their lost ground after touching a 6-week high the week prior. Conforming mortgage rates were down last week.

News of the Federal Reserve’s announcement made headlines last Wednesday, but it was the less-reported stories that helped shape markets and improve home affordability.

For one, Consumer Confidence unexpectedly fell.  This is a key gauge for economists and for Wall Street because, in theory, a confident consumer is more likely to buy goods and services — a key element in any economic recovery.

Other recovery-slowing news included:

• Retail Sales falling well short of expectations
• An increase in Initial Jobless Claims

To be fair, there were a handful of good-for-the-economy stories last week, too, but markets dwelled more on the negative ones.  While the stock market’s 4-week winning streak was ending, investor cash was moving to mortgage bonds, causing rates to fall.

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• On Wall Street, shoppers trump the Fed (msnbc.msn.com)

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The week’s key events are Fed Chairman Bernanke’s Tuesday testimony on Capitol Hill and Thursday’s Existing Home Sales data.  Mortgage rates remain volatile so if you’re offered a rate that comfortably fits your household budget, consider locking in before the market can change.

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Next week’s Economic Calendar is light with reports, there are no Treasury auctions next week, which could help Bonds improve in the short term. In other words look for Mortgage Rates to improve!

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Speculation on the improvement can be attributed to the 9 Firm kick start of the Public Private Investment Program (PPIP).  This does weigh heavily and is a major contributing factor, although with more than $612B still earmarked for Federal Reserve MBS Purchase Program it is hard not see downward pressure on rates.  I should note one caveat once the program wraps it’s “Back to the Future – Carter Era Inflation”.

For now lets enjoy the historic low rates.  Real Time Mortgage Rates!

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Fed announced its plan to purchase Mortgage Backed Securities last week, and began buying them Monday. The Fed will announce the results each Thursday (This should be an interesting rate day).  The Fed is estimating 500b will be purchased. This process will continue gradually through June and should aid in pushing rates down until then. (Read between the lines, make sure your refinance or purchase before the end of July 2009, in order to take part in History) Market Forecast Week of January 5, 2009

As you can see from the chart it has not been pretty in the MBS Market. If my Technical Analysis serves me right; if we don’t fill Friday’s gap we are in trouble!

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