Monday: Started Strong, Now Back To Even

MBS opened higher this morning (higher in price, lower in rate) and have since pared those gains.  Contributing factors are

1. Friday's excellent demand for MBS, which drove prices up, and is enticing some investors to sell their MBS holdings due to the rapid price run-up.

2. Wholesale Trade numbers this morning reported that inventories and sales rose.  Although this report is not of high importance to the MBS market, it is one of the few reports that has not pointed toward recession recently.

We had a fantastic day for MBS on Friday.  At that time, the call was to float as much of the late day improvement did not yet make it into lender's rate sheets.  As pricing is released today, we are seeing evidence of that.  However, MBS prices have rapidly deteriorated in the last hour as investors stepped in to sell after prices continued to rise this morning. 

As of now, the trend line is moving down, and quite sharply.  Perhaps the market will consider Friday's run-up to be exuberant and we'll experience some more MBS selling here this morning which would push rates a bit higher.  The nice thing is that, exactly as expected on Friday, unless your lender waits longer than usual to release rates, this mornings skittishness will not leave us in a worse position than Friday.  However, if the downward momentum in price continues, we could see the earlier releasing lenders issue a reprice for the worse.

Was Friday afternoon (and early this morning) the top range of MBS prices for a while?  I wish I had that crystal ball.  If you're closing short term, locking ASAP this morning is the safe bet.  With the Dow dipping under 12,000, there is some technical "pull" for it to come back a bit.  Any positive economic data this week will only add to those technical factors.

The early part of this week is relatively light on data, which opens the door for volatility based on unforeseen events and news headlines.  You can solidify Friday's gains and take the risk out of the market by locking today.  Even if rates improve, I'm not sure the risk is justified.  The caveat is: take not of when your lender releases pricing.  Many of them will be watching this morning's slump and waiting until it's over to release pricing.  

I'll be back with an update shortly on where this morning's trend is going and to discuss possible scenarios where floating might make sense for some of us that can afford to take the risk.