Wednesday 2/11…Decent Rally Yesterday in MBS

Yesterday mortgage backed securities managed to have a decent rally and closed higher by about .375% in discount.  Many lenders repriced yesterday for the better and we should see better rate sheets this morning.  I suspect par 30 year conventional fixed rate mortgages to be anywhere from 4.5% to 5%.  To get a par interest rate you would be required to pay all closing costs and 1 point.  Also, the best rates go to consumers who have higher then a 740 credit score.  If your credit score is lower, you will either take a higher interest rate or pay additional fees to buy the lower rate.  If you are seeking a government loan such as FHA, expect your rate to be at least .25% to .375% higher.  The big not news yesterday was the anticipated announcement from Sec. of Treasury Geithner of the banking rescue plan.  Investors where let down with the lack of any details resulting in the belief that the government does not have a plan yet.  This caused a massive sell off in the equity markets resulting in a flight to quality with investors buying treasuries and mortgage backed securities.  As investors buy mortgage backed securities, it drives their prices higher resulting in lower mortgage rates. 

Today we did get the release of trade balance.  Economists where expecting the trade numbers to come in at -$37b, but the number came in slightly worse at -$39.9b but there was really no reaction in the markets to the news.   Later today the treasury department will have another treasury auction of 10yr treasury notes.  The auction yesterday of 3 yr notes was received very well causing treasuries to rally which helped mbs rally as well.  The added supply of treasuries will put pressure on treasuries and mbs to move lower in price which could result in worsening mortgage rates.  Hopefully, this auction will go over well.

Currently, mortgage backed securities are unchanged on the day.  After the rally in both treasury and mbs markets, it would not be surprising to see some profit taking today which could result in worse rates later today or tomorrow.   If you need a good indicator today but do not have access to mbs pricing, keep an eye on the 10 yr treasury yield which is currently at 2.80.  If that moves higher, it will probably have a negative effect on mbs which could result in reprices for the worse.  So far this morning, we are holding steady between unchanged on the day to slightly positive.  If things start to move to the worse, I will get back to you with an update.