What Happened Last Week?

Last week saw mortgage backed securities display weakness despite of favorable data, keeping the status quo so to speak.  We saw the Fed keep their rates the same and their comments on the economy were essentially unchanged.  The noticeable change was in the job market where their message switched from a deteriorating state to one that is stabilizing.  And the week ended with the Treasury Announcements and set MBS prices into the tailspin that started Thursday and kept going on Friday.

What Lies Ahead for This Week?

This week will continue to be about the Treasuries as those announcements will become auction this week and the results will help dictate the direction of mortgage rates.  We will also see several Feds speaking and will end with some more data that could shape the markets.  Take a look at what is on the docket this week…

• Monday:  3-month T-Bill Auction (11:30), 6-month T-Bill Auction (11:30), Dennis Lockhart Speaks (3:45)
• Tuesday:  Existing Home Sales (10:00), FHFA House Price Index (10:00), 4-week T-Bill Auction (11:30), 2-year T-Note Auction (1:00), Janet Yellen Speaks (3:00)
• Wednesday:  MBA Purchase Applications (7:00), Durable Goods Orders (8:30), New Home Sales (10:00), Crude Inventories (10:30), Tom Hoenig Speaks (10:45), 5-year T-Note Auction (1:00)
• Thursday:  Jobless Claims (8:30), Sandra Pianalto Speaks (9:10), 7-year T-Note Auction (1:00), Money Supply (4:30)
• Friday:  GDP (8:30), Consumer Sentiment (9:55), Kevin Warsh Speaks (11:30)

As you can see, there are no major players in data, but some could ruffle a few feathers.  You can bet that MBS traders will be watching the Treasury Auctions, especially the longer-term ones, and any disappointing results are sure to weigh heavy on MBS prices, and thus mortgage rates.

What do the Charts Say?

Looking at the charts, we see that the future is still uncertain, but that the best we likely can hope for is a sideways trading pattern.  Stochastic indications are still fairly high with a negative crossover, meaning there is plenty of momentum to fall building up.  MBS prices have dropped below their 25-day moving average (MA) and even went briefly below their 50-day MA before bouncing back to close 2 basis points above that level.  The 10-day MA crossed below the 100-day MA and is set to negatively cross the 25-day if MBS prices cannot rebound.  The odds favor MBS prices to fall from here, so play it safe, though hope is not entirely lost.

The Bottom Line…

The bottom line this week is expect mortgage rates to rise more unless they can mount an immediate rally as the week begins.  The momentum is surely pointed towards mortgage rates continuing higher, though the future is not etched in stone.

(Side note: I am back to writing my weekly Mortgage Market Update at Lenderama.)

Locking Stance: LOCKING    Mortgage Bonds: –6bp

My normal breakdown of today’s events is going to be omitted due to web hosting issues I am encountering.  You may of noticed MBS Commentary is no longer operating due to a database connection issue.  Well, this is but one site that was effectively destroyed due to my web hosting company migrating to a new server.  The websites have been down for over a week and I have yet to receive a fix or even a response from the hosting company in regards to the issue.  As such, I am currently in the process of transferring my websites over to a new hosting company.

Please be patient as I switch hosting companies and hopefully I will have all of my websites back up and running within the next week.  I plan on resuming normal posts here tomorrow, hopefully after fully migrated to the new host’s server and with a successful database migration.  I am hoping there will be no technical issues or lost data as there have been in the past.

Thank you for you understanding….

What Happened Last Week?

Quite simply, as the data flowed it was unfavorable for the most part.  We saw continued data pointing to a slow recovery in the economy as the Empire State Manufacturing Index, the Philadelphia Fed Survey, and more, all point towards improvements.  And even inflation was in the the mix as the data flowed and last week’s inflationary data was mixed, with inflation climbing at the producer level and holding tame mostly at the consumer level.  However, jobs remain weak as Jobless Claims were higher than expected, bringing back that favorite word, stagflation.  As you likely know at this point, inflation is the arch enemy of mortgage rates and while the CPI was fairly tame, the PPI’s rise raises questions about inflation down the road as producers attempt to pass the costs.  And with data pointing towards “kinks” in the supply chain, they have a better than normal chance of doing so.

What Lies Ahead for This Week?

With the data taking aim at MBS prices, we find ourselves in about the exact same spot as last week.  That is, we are likely at the beginning of the next corrective move, or retracement, which I will get into more in the technical analysis.  As for data, there is only Treasury Auctions today, but data will be heavy as the week unfolds.  We will see Consumer Confidence and Sentiment, along with more solid data on the housing market which has been in question as well lately.  Numerous Treasury Auctions will occur this week and the added supply may hurt MBS prices and mortgage rates, especially if the auctions’ results are not solid.  There will also be numerous speeches this week from various Feds, including Big Ben Bernanke talking to Congress again for two days.  The week will end with a big read on the economy, the Chicago PMI, among other things.

What do the Charts Say?

As I mentioned earlier, we find ourselves in a fairly similar situation as last week began.  We have seen a significant drop in MBS prices and that places in the need for a corrective move higher.  We saw MBS prices bounce off support after breaking below their 200-day moving average, one sign showing the correction started and today’s slight move higher seems to point to its existence as well.  Stochastic indications have moved into the oversold spectrum, adding more proof that the move is needed and as they run flat, maybe even bringing the crossover today or tomorrow, we see more proof the corrective move is beginning.  But do not read too much into this move and try to think it is more than a corrective move as there is no proof.  Instead we see more negatives, namely the 10-day MA is crossing below the 50-day after crossing the 25-day MA last week.  The 25-day and 100-day MAs have turned lower and the 50-day is targeting the 200-day MA at this point as well.  All-in-all, the charts are very negative about the future other than the need for a corrective move.

The Bottom Line…

As with last week, mortgage rates will likely edge lower slightly before beginning their next leg higher.

As I have now started posting regularly on MBS Commentary, I have decided to keep all posts here duplicated there, at least for now.  MBS Commentary is still under development, so expect many changes coming, possibly even a complete redesign.  Nevertheless, it is up and running. 

What Happened Last Week?

What a week considering there was hardly any data to move the markets.  Needless to say, news took a front seat and started the week off with Greece’s potential default on its debt in focus.  Of course, the European Union won’t allow that to happen, though it will be interesting to see how Spain and Portugal’s rising debt problems are resolved. Additionally, China’s decision to take measures to cool their economy had some effect on our markets.  Locally, the Treasury Auctions were also in the driver’s seat and the dismal results just kept coming in and the longer the term, the worse the results.  That spelled bad news for mortgage rates for the most part, though the the complete selloff caused a retracement to begin as well.  And finally, making the charts look miserable, there was the monthly mortgage bond rollover.  By the end of the week, had edged slightly higher and began to edge lower again as expected (see last week’s report).

What Lies Ahead for This Week? 

Unlike last week, this week has plenty of data to shake the markets, or light a fuse under their butts.  The week started off taking a day off in observance of President’s Day, so expect volatility to be encountered this week as well.  Data starts flowing in Tuesday (tomorrow) and just keeps coming.  While Treasury Auctions are non-existent except the short-term Treasuries, the Treasury Department will be announcing upcoming auctions of the 2-year,  5-year, and 7-year T-Notes.  As the week progresses, we will see data on housing, the economic recovery, and ending with inflation.  Without getting into detail, you can see there is plenty of data and events that can push or pull on MBS prices, and thus mortgage rates.

What Do the Charts Say?

Starting this week, I am putting the technical analysis into its own section, so here it is.  Despite the skewed movement caused by the monthly rollover, MBS prices dropped significantly and when you look at the charts like most traders do, you could see the need for a retracement which began as the week drew to a close.  If you have been following the daily forecasts, you knew the retracement would get back to around the 10-day moving average (MA), which it did. 

MBS prices are above their 50-day MA, but don’t get your hopes up as this was required to get a solid retracement.  While it does provide hope, the charts still favor MBS prices falling.  The 10-day MA was repelled by the 100-day MA, failing to make a positive crossover.  The 25-day MA is threatening to do the same thing with the 50-day MA, though momentum should take it through, at least briefly.  The 200-day MA held as support this time around and may be the testing ground if MBS prices fall again as I suspect they will.

Stochastic indications are favorable for a rebound in mortgage backed securities as they are on the low side of the chart.  That being said, there is plenty of room for further downward movement, so this is not a guarantee by any means.  Overall, the charts still favor MBS prices moving lower and mortgage rates heading higher as a result.

The Bottom Line…

This week will likely see mortgage rates edge slightly higher but as data flows and with the expected increased volatility, take things day by day.

As I have now started posting regularly on MBS Commentary, I have decided to keep all posts here duplicated there, at least for now.  It may yet evolve into something else, but let’s see how it goes.  MBS Commentary is still under development, so expect many changes coming, possibly even a complete redesign.  Nevertheless, it is up and running.  OK, here is the first Weekly Mortgage Rate Forecast Recap…

What Happened Last Week?

Last week saw continued volatility to say the least, but did see MBS prices break through important levels of resistance, and thus changed the outlook.  They did so despite not so favorable data and news.  They started off the week taking a beating as stocks rallied, but the 10-day moving average held them and continued to drive mortgage backed securities higher and higher.  Most everything centered around the jobs front and things were not looking too good after Wednesday’s ADP Employment Report and the Treasury Announcements for this week’s longer-term Treasury Auctions.  It looked like the proverbial “nail in the coffin” as the 50-day MA proved too strong to break and MBS prices dipped below their 10-day MA.  But mortgage bonds rallied back Thursday and changed the entire picture by not only getting back above their 10-day MA, but breaking through both the 50-day and 100-day MAs definitively.  Friday came and was as expected, the Jobs Report was slightly better than expected and MBS prices took a nose-dive, but when reality hit, they took off again, climbing all the way to their next layer of resistance before backing down.  When all was said and done for the week, MBS prices had risen 37 basis points.

What Lies Ahead for This Week? 

This week is lacking in economic data with essentially Retail Sales and Jobless Claims (both Thursday), and Consumer Sentiment (Friday) as the only reports that may move the markets.  This week does hold numerous Treasury Auctions with traders’ eyes on the 3-year T-Note, the 10-year T-Note and the 30-year T-Bond, the latter being the more important to mortgage rates. 

When we look at the charts, we see that MBS prices have broken resistance and are poised to keep mortgage rates low, maybe even lower than they are now.  Stochastic indications remain in the overbought spectrum, so a pullback will likely be seen this week, but unless there is a surprise, I doubt they will dip below their 100-day MA.  And speaking of moving averages, we now see the 10-day breaking above the 100-day and while the 50-day is still dropping, the 25-day is climbing quickly.  Overall, there are considerably more positive indications than negative right now for the future. 

The bottom line is that this week will likely see mortgage rates edge slightly higher but then turn lower again.

Today’s report will be delayed as my daughter has an event in school today. Currently my stance has not changed and the correction may be over. I will provide an update shortly after noon today.

I am forced to write this update from my Blackberry, so please pardon the brevity and lack of normal format.

I am switching to a CAUTIOUSLY FLOATING stance with some reluctance. MBS
I will add more tomorrow hopefully.

Locking Stance: LOCKING    Mortgage Bonds: 6bp

Mortgage backed securities have already backed off their highs and it looks as though their 25-day moving average will remain a layer of resistance.  With the absence of any real data, the markets will really rely on technicals and news, which favor higher mortgage rates still.

What does this mean for Florida Mortgage Rates?  Mortgage rates will most likely tick higher in the foreseeable future.

Locking Stance: CAUTIOUSLY FLOATING    Mortgage Bonds: +6bp

Mortgage bonds will likely hold their ground today as data plays are essentially non-existent with the only one being the already released Existing Home Sales, which was higher than expected, marking what could very well be the bottom of the housing market.  The data showed a monthly increase of 5.1% which brings the annual rate up to –4.6%.  If you have been afraid of losing money in real estate, you better get off the fence as prices may even start moving higher soon.

The only other players, besides technicals, will be the Treasury Auctions this afternoon.  I expect that since we are around the 50% retracement level, mortgage backed securities will hold their ground today, making only slight moves higher (or even lower) today.

What does this mean for Florida Mortgage Rates?  Expect mortgage rates to hold steady for the foreseeable future.  The long term picture remains uncertain, but should solidify in the next day or two.

Locking Stance: LOCKING    Mortgage Bonds: -12bp

Sorry for the late post this morning but my flight was delayed.  The markets are still in the corrective process today as you can see, mostly due to the stock market rallying as Ben Bernanke is talking about “Mark to Market”.  The move of pricing is certainly not unexpected as I have been talking about this retracement since Friday.

There are no real data plays today, so once again technicals and stocks will be the driving force, so a retest of the 25-day moving average has already proved to be support, at least so far, as mortgage backed securities started the day almost exactly at that level and are higher since then.  Mortgage bond pricing will be tested with more supply hitting the markets as well, so we may see another test of the 25-day moving average.

What does this mean for Florida Mortgage Rates?  Expect mortgage rates to be slightly higher today, but will likely hold steady.  Short term still looks “iffy” for lower mortgage rates, but if the mortgage bonds hold their ground, lower rates may yet be in the future.