Wednesday 2/25…Post Obama Speech

Yesterday, mortgage backed securities gave back their gains of the prior day and closed down a few ticks which caused some lenders to reprice for the worse.  So far this morning we are up on the day being helped out by a sell off in the Dow.  The main cause of mbs moving lower yesterday was a big rally in equities which caused investors to sell fixed income investments and move the money into equities. 

Today, the only economic report to be released is existing home sales.  Economists are expecting a 4.8 million annual pace after last months 4.74million pace.  The actual number came in at a disappointing 4.49 million which is the slowest pace since 1997.   Also today, Ben Bernanke will be continuing his testimony to Congress and as always investors will be listening to every word he has to say.  Lastly, we have another treasury auction, this time 5 year treasury notes.  With the added supply of debt available, it could apply pressure on mbs to move lower which could cause lenders to reprice for the worse later today.  This is the law of supply and demand, with more supply of debt on the market, it could drive the price lower which increases the yield they pay.  Since, treasuries and mbs are both fixed income investments they tend to move in similar direction.  So, if treasuries move lower that would apply pressure on mbs to move lower in price which increases mortgage rates. 

So far this morning, mbs are up slightly and the stock market is selling off.  This appears to be a classic buy the rumor sell the news.  Meaning, investors where hoping that President Obama would give more details last night in his speech, so the stock market improved yesterday.  If you listened to his speech last night, there was really no details given out just the big picture so today it appears that investors are disappointed with the lack of any details so they are selling equities and moving money to the sidelines and fixed income.  Early reports from fellow mortgage professionals show lender rate sheets slightly better this morning.  We should see par 30 year conventional rates anywhere from 4.75% to 5% depending on the lender.    If the dow turns around later today, we could see mbs suffer but so far we are holding onto slight gains.  I will get back to you later if we see a big movement in either direction.