Locking Stance:  LOCKING     Mortgage Bonds:  -19bp

Mortgage backed securities are off their lows, which is a good sign, but they are down today, which keeps the concerns alive.  Their closing yesterday marked a solid retracement and that means today’s move lower in MBS prices could spell the end of a retracement and the establishment of a new trend, possibly a downtrend.  As we mentioned before, we still need to solidify the pattern, but there are serious concerns at the moment.

Today had some data compared to yesterday, though nothing significant as MBS prices are being driven by news, money flows (between stocks and bonds) and technical indications.  Yesterday’s short-term Treasury Auctions (3-month and 6-month T-Bills auctions) went very well with high bid/cover ratios and the lowest yields this quarter.  The 3-year T-Note Auction yesterday also was solid, but the smaller amount ($33.0B) needs to be taken into account as well.  Today will see the 10-year T-Note Auction, so we may see some market movement around 1:00.  Data this morning was limited to the weekly MBA Purchase Applications report.  The MBA Purchase Applications report showed Purchase Applications were up 6.3% while Refinance Applications were down 3.1%.  While we see an increase in Purchase Applications, keep in mind these numbers are after a dramatic decrease and Refinance Applications still represent 82% of the total mortgage applications.  We still have the Beige Book to look forward this afternoon, so more market movement may be seen around 2:00.

What does this mean for Florida Mortgage Rates?  Mortgage rates are edging slightly higher this morning and that brings the risk/reward ratio back into the unfavorable side even for the short-term.  The overall outlook is still not etched in stone, but with today’s movement, odds favor mortgage rates edging higher at this moment.

Locking Stance:  CAUTIOUSLY FLOATING     Mortgage Bonds:  +47bp

Mortgage backed securities are in a move higher, which will likely be merely a retracement, though we cannot rule out the trend remaining intact as was mentioned in yesterday’s radio show.  Only time will tell for sure, but there are some serious concerns.

There is no data slated to be released today, but we do have some European news raising credit concerns and there are Treasury Auctions coming up.  The weekly short-term Treasury Bill Auctions are due out shortly and the more notable auction for today will be the 3-year T-Note auction which will be released at 1:00. 

With MBS prices moving higher, and likely more to come to complete a solid retracement, we are going to hold a cautiously floating stance.  Things can change quickly and we will update you if needed.

What does this mean for Florida Mortgage Rates?  Mortgage rates are edging lower today so you can take advantage if you did not lock in last week (which would have been better).  The overall outlook remains unfavorable, though this outlook may change still.

Locking Stance:  LOCKING     Mortgage Bonds:  0bp

Happy Labor Day!  Mortgage backed securities and mortgage rates are taking a break today as the markets are closed for the holiday.  Don’t worry though, markets will reopen tomorrow and things could very volatile for the week as it is a holiday-shortened trading week.  There is not much data on the docket, but there will be plenty of Treasury Auctions to make or break the markets.  Also, don’t forget to listen to today’s Mortgage Market Weekly radio show for an in-depth review and mortgage rate forecast.

Locking Stance:  LOCKING     Mortgage Bonds:  -41bp

Well, we hate to say it, but remember that you heard it here first and therealdeal.com had picked up on it last week.  What was it?  that “change is in the air”.  Our author had been predicting mortgage rates would likely begin to rise by the end of the summer (since May) and it now appears that could be the case.  It is still too early to be certain, but today’s plunge certainly is not helping mortgage rates remain low.

As we have been saying this week, today’s Jobs Jamboree would be a huge player in shaping where mortgage rates would be headed.  The Jobs Report came in as shown in the chart below:

There you have it, a very unfavorable Jobs Report in regards to mortgage rates and mortgage backed securities.  With Nonfarm Payrolls coming in greater than expected, even though negative, that is hurting MBS prices, as is the fact that Private Payrolls beat expectations even though they dropped compared to last month.  The other negative is that Average Hourly Earnings rose greater than expected and that adds some to the inflationary fears, but it does help combat deflationary fears, so it is essentially a wash right now.  The salvation from complete breakdown in MBS prices is that the ISM Non-Manufacturing Index (ISM Services Index) came in at 51.5, below the consensus for 53.0 and down from 54.3, a very favorable report.

MBS prices plunged immediately after the report was released, but they are bouncing back after the ISM Services Index was released.  That being said, they will likely bounce around the remainder of the day as traders close out positions they do not want to hold over the weekend.  The important things to note on the charts are that MBS prices are now trading below their 25-day moving average for the first time since April and we have a very negative crossover on stochastic indications.  The FNMA 4.0% mortgage bond does not look as bad as the FNMA 3.5% mortgage bond, but it still does not look good. 

What does this mean for Florida Mortgage Rates?  Mortgage rates continue to edge higher and are now looking like the trend may very well be broken and mortgage rates may be on the verge of a steady climb, if not just holding steady.  The risk/reward ratio is obviously unfavorable at this time.

Locking Stance:  LOCKING     Mortgage Bonds:  -28bp

Mortgage backed securities certainly bounced around yesterday, but ended up slightly higher than when we posted and kept some hope alive that the trend would not be broken.  Well, today they are off to another bad start, again triggered by data surrounding the state of the economy and that raises concerns again.

Data this morning started off with the weekly Jobless Claims, which came in at 472K, essentially inline with expectations of 470K.  The 4-week moving average dipped slightly to 485.5K.  The numbers are coming down slightly, but the 4-week moving average is still 25K higher than last month and not a positive signal for tomorrow’s Jobs Report.  Nevertheless, since the numbers are edging lower, traders are being optimistic and that is sending MBS prices lower.  Productivity and Costs was the next item on the agenda and showed Productivity at –1.8%, just above estimates of –1.9%, and Unit Labor Costs at 1.1%, just below estimates of 1.2%.  This is a better than expected report, but again essentially inline with expectations, but traders are running with it.  The surprise of the day was the Pending Home Sales report which came in at 79.4, a surprising jump of 5.2% from 75.7 and the first signs of life from the housing sector in a while.  Ben Bernanke and FDIC’s Sheila Blair were testifying before the Financial Crisis Inquiry Commission in Washington and Big Ben acknowledged that the too-big-to-fail policy was a big part of the problem and stated that the Fed was slow to recognize the sub-prime crisis and that the run-up in house prices obscured the problem.  Wow, is a government official actually accepting part of the blame?  Nah, can’t be.

Still to come is the Treasury Announcement of the upcoming 3-year T-Note, 10-year T-Note and 30-year T-Bond auctions.  We will also see the 10-year TIPS Auction this afternoon.  The added supply and the potential for a weaker than expected auction today could add to the decline of MBS prices.  Of course, they could also become the savior of the “freefall”.  The biggest player of the week is still yet to come as tomorrow’s Jobs Jamboree will certainly play a huge role in shaping the future of mortgage rates.

What does this mean for Florida Mortgage Rates?  Mortgage rates are again edging higher today and the outlook remains questionable for record low mortgage rates.  The risk/reward ratio is certainly not favorable at this point, though things can change quickly.

Locking Stance:  LOCKING     Mortgage Bonds:  -34bp

Mortgage backed securities are once again heading down and bringing “fear” back into the equation.  Things were looking bad as the day began, but nothing compared to what the final bit of data brought on and, just as was stated in yesterday’s radio show, this week’s data is truly shaping the future of mortgage rates.

The day started off with the MBA Purchase Application report which showed Purchase Applications rose 1.8% and Refinance Applications rose 2.8%.  While it is certainly nice to see positive numbers for a change, remember that these numbers are from severely depressed beginnings.  Next up on the list was the ADP Employment Report which forecasts (typically inaccurately) what lies ahead in Friday’s Jobs Jamboree.  This morning’s ADP Employment Report estimates Private Payrolls coming in at –10,000, which is actually better than what was expected, but still not much of a surprise and MBS prices did not move much as a result.  The final data play for the day was just released about ten minutes ago, the ISM Manufacturing Index which threw a huge surprise into the mix and MBS prices are plummeting as a result.  The ISM Manufacturing Index  came in at 56.3, well above estimates of 53.0 and moved up from last report’s 55.5, moving in the opposite direction of what was expected.  You can expect some volatility as the “dust settles”, but this is certainly not good for MBS prices and mortgage rates.  We have Crude Inventories coming up, though it is not a player usually.  We also have Elizabeth Duke and Richard Fisher speaking in a while, so their words may make some waves as the day progresses.

Looking at the charts, this move lower negates the gains of yesterday and puts MBS prices back below the higher resistance layer and right at the lower one.  For mortgage rates to remain low, this lower resistance will have to prove itself to be support, so time will tell.  Stochastic indications remain positive, but are rapidly approaching the top of the overbought spectrum, so this move lower may be indicative of what lies ahead.  Again, it will take a day or two, certainly with all the data coming the next two days, the trend will be solidified and we will see if new record low mortgage rates can be set, or if it is time for mortgage rates to stabilize, if not move higher.

What does this mean for Florida Mortgage Rates?  Mortgage rates are edging higher after some positive economic data and that moves the risk/reward ratio back to unfavorable.  The trend is not broken yet, but some serious concerns are “in the air”.

Locking Stance:  CAUTIOUSLY FLOATING    Mortgage Bonds:  +28bp

Our apologies for not posting yesterday as well as being unable to change the locking stance.  With our author being “unavoidably detained”, we were unable to post accordingly as we warned in the early hours.  Additionally our inability to communicate with him due to poor internet connections left us unaware of his intents prior to his departure from Paris, France. 

What happened yesterday?  Personal Income and Expenditures was released, which covers three reports in one, with the Fed’s favorite gauge on inflation, the Personal Consumption Expenditures Index (PCE) being included.  Personal Income rose less than expected at 0.2% and is up 3.0% year/year.  Consumer Spending rose 0.4%, bringing it to 3.4% year/year.  That kept Core PCE at 0.1%, inline with expectations and certainly calming any inflationary fears, at least for now.  But what about deflation?  Well, overall PCE came in at 0.2% and that keeps those deflationary fears at bay as well, again at least for now.  Needles to say, with both inflationary and deflationary fears at bay, MBS prices reacted very positively.  The short-term Treasury Auctions were solid as well, so there was nothing stopping MBS prices from climbing as stocks shot lower.

Today saw the Case-Shiller HPI which continues to show slight gains though its numbers were all less than prior and indicated trouble for home prices ahead.  The Chicago PMI, a heavy-hitter to say the least was also released and came in at 56.7, down from last report’s 62.3, but just above the consensus of 56.0.  And finally, just released was the Consumer Confidence Report and that was 53.5, above expectations for 51.0 and up from 50.4.  While the last two reports were above expectations, Chicago PMI is actually down considerably from the prior report and that is seen negatively and MBS prices continue to climb right now, setting record heights at this time.  That is good news if they can hold, but will be bad news if they get pushed back.  This week has some major reports coming out, much more due out than what we have already seen, so things can change, and do so very quickly.

What does this mean for Florida Mortgage Rates?  Mortgage rates are again edging lower and while the trend was in question last week, it appears to remain intact.  Currently, the outlook is again favoring steady to lower mortgage rates and the risk/reward ratio is again favorable.  Things could change at any moment, so be ready if they do.

PS – Don’t forget to join for today’s radio show at 11:00 ET, about an hour from now.

Locking Stance:  LOCKING     Mortgage Bonds:  0bp

Today’s Mortgage Rate Forecast is going to be delayed considerably as the author is flying back from Paris, France today.  In fact, he is likely somewhere over the Atlantic Ocean while you are reading this.  We apologize for the inconvenience and he will try to upload today’s forecast upon his arrival this afternoon.  In the meantime, please join him tomorrow (Tuesday 8/31/10) for the Mortgage Market Weekly radio show at 11:00 ET.  His analysis will likely not be something you want to miss, especially after last week and looking forward to this week’s market-moving data.

Locking Stance:  LOCKING     Mortgage Bonds:  -3bp

What an interesting last 24 hours as we saw mortgage backed securities rebound yesterday, all the way back to its resistance layer and some lenders did re-price for the better, but far from all.  This morning saw stock futures rally and MBS prices plummet, erasing the gains of yesterday and by the time some lenders priced this morning, there were no gains to be found (something we expected, hence why we remained “locking”).  Now, if you are lucky you are with a lender which prices at 10:00, you will make some minor gains, but those are already in jeopardy today and everyone else will be out of luck.  The bottom line is if you locked yesterday per our advice, you are likely better off than if you floated into this morning.

Today is a big day, just as we mentioned before.  GDP was the starter of the day and came in better than analysts expected (we played that right), coming in at 1.6% versus the 1.3% expected.  In the underlying numbers, real final sales to domestic purchasers was revised higher to 4.3% from 4.1% and many traders are playing off that number as well.  On the inflation front, the GDP Price Index was bumped up to 1.9% from 1.8%.  While that is not a big deal overall, it is certainly not a move in the right direction for MBS prices to make gains.  One favorable report was the Consumer Sentiment report, which was reported at 68.9, below expectations of 69.6 (same as last reported).  MBS prices rose all the way back to above their “flatline” as a result, and even off the initial reaction from Ben Bernanke’s speech in Jackson Hole, Wyoming.  We may get more on that later, but the gist is that the economy is not improving like they hoped (duh) and they are standing ready to throw more money at it if needed.  The “spook” here is that he mentioned that inflation is below healthy levels…"inflation has declined to a level that is slightly below that which FOMC participants view as most conducive to a healthy economy in the long run.”  Now it appears the resistance layer will hold and mortgage rates may even be ready to start edging higher.

What does this mean for Florida Mortgage Rates?  Mortgage rates are starting to edge higher today in a very volatile today.  The outlook is indeed changing and concerns are now essentially outweighing potential awards as they began to show yesterday.  If things improve, we will let you know, but for now it appears locking remains the best option.

Locking Stance:  LOCKING     Mortgage Bonds:  +3bp

What a turn around in mortgage backed securities we experienced yesterday and we see those concerns mentioned before are apparently overwhelming the markets.  We mentioned yesterday that things were looking good, which they were at the time of our report, but the 4.0% FNMA mortgage bond dropped and failed to break free of their sideways pattern.  The 3.5% FNMA mortgage bond also fell back below resistance and we may be looking at the formation of a head-and-shoulders pattern, which is a negative signal.  Further price erosion today could be indicative of “change”.  The good news is that we remain above the 10-day moving average on both charts at the moment.  The result is that we do not like the way the charts are shaping and are erring on the side of caution.  We may be back to floating quickly, but a “surprise” might be lurking in the shadows.

The main reason for the change was the fact that yesterday’s 5-year T-Note Treasury Auction did not go over very well.  While the bid/cover ratio was a respectable 2.83, the fact that it was the smallest auction amount of the year reflects that demand may be dropping.  Additionally, the stop-out rate was 1bp above the 1:00 bid, another negative.  The good news was that buyside participation remained respectable.  Eyes will certainly be on the 7-year T-Note auction due out this afternoon, but traders are already reacting to this morning’s Jobless Claims numbers.  Jobless Claims came in better than expected at 473K versus 495K and showed improvement from last week’s 504K (revised 4K higher).  That brings the 4-week moving average up to 486.75K despite the 31K (second biggest decline this year) improvement over last week.  The key to where mortgage rates are headed will likely rest on tomorrow’s GDP and Consumer Sentiment.

What does this mean for Florida Mortgage Rates?  Mortgage rates are holding steady today and likely will do so at least until this afternoon’s Treasury Auction.  The outlook is moving to a more uncertain pattern with concerns growing.  Tomorrow’s data will likely be the deciding factor.