Friday 3/13…Beware of Jason, It’s Friday the 13th

Yesterday, mortgage backed securities closed higher by a little more than .125 in discount.  Treasuries rallied after the auction at 1pm which helped to pull mbs higher.  Remember, as mbs move higher in price, mortgage rates move lower in interest rate.  So far this morning, mbs have given back the gains from yesterday so we should see similar rate sheets this morning.  Early reports are showing par 30 year conventional mortgages anywhere from 4.75% to 5% depending on the lender.

We did get the release of some economic data this morning.  First, we got the release of import prices.  Economists where expecting a -.8% drop in prices paid for imported items; however, the number came in slightly worse at a -.2% drop.  So, the prices we pay for imported items did not drop as much as expected.  This is somewhat negative for mbs as higher prices lead to inflation but the number still showed a month over month decline in prices.  Next, we got the trade balance numbers or as I like to call it trade imbalance.  Economist expected a -$38.1billion dollar difference between what we export and what we import, and since a negative number we import much more than what we export.  The actual number came in better at -$36 billion trade gap which is the lowest gap in over 5 years.  Lastly, we got the release of consumer sentiment.  Economists expected a reading of 55.0 after last months 56.3; however, the actual reading came better at 56.6.  So the consumer is feeling a little better about our current economic situation than forecasted.  This is somewhat negative for mbs since a happy consumer is more likely to spend money which leads to stronger economic growth and possibly inflation. Historically, this number is still very low but it is better than expected and better than expected economic news is a negative for mbs. 

Since the data has come out, mbs are still holding their ground but down slightly on the day.  The stock market is in positive territory, again and treasuries have sold off from a low yield yesterday of 2.82 to currently trade at a 2.90 yield.  I suspect we will see sideways trading with mbs today unless we have a substantial stock market rally.   It appears that mortgage rates are stuck in a range from 4.75% to 5.125%.  Each time we start to move lower, we hit resistance and slowly move back up to hit a ceiling than back down.  This is what I described as the sideways S pattern.  Rates move lower, bottom out than turn higher and top out, than repeats.  This pattern has held pretty steady now for quite some time.  If you are sitting on the sidelines waiting for rates to move lower, you might consider getting off the fence and move forward with your refinance as we are at the bottom of the current range.  One important thing to point out though is mbs have been holding up quite well in light of the stock market moving higher by over 500 points in the last few days and with treasuries bouncing all over the place.  Just in the past 48 hours, the 10 yr treasury has moved from a high yield of 3.04 to a low yield of 2.82 back to the current yield of 2.92.  So, mbs have become a little more detached from both treasuries and equities than they have been over the last few months.

I will get back to you later today with an update.