Mortgage Rate Forecast – April 27, 2011

Locking Stance:  LOCKING*      Mortgage Bonds:  -19bp

Mortgage backed securities are backing off a bit this morning after a decent runup to their next resistance layer (as I expected might happen).  They are now in need of a pullback, or correction, which seems underway.  The overall outlook, well, I will get into that in a moment.

The MBA Purchase Applications report showed Purchase Applications down 13.6% and Refinance Applications down 0.6%.  Certainly not good news for the housing market despite the recent increases in Housing Starts and Building Permits.  Of course, the rush to beat FHA insurance premium increases sort of set up the fall, so maybe it is not all that bad.  Yeah, right!  Durable Goods Orders came in at 2.5%, beating expectations of 1.9%, and that is up from -0.9% last report and brings the year/year to 10.5%.  Not good news for MBS prices, hence the fall this morning.  Ex-Transportation numbers show more of a mixed story, coming in at 1.3%, up from -0.6% and the year/year numbers dropped from 8.5% to 6.1%.  Crude Inventories will be released shortly, but don’t expect much market reaction.

Yesterday saw the 2-year T-Note Auction, the first of this week’s Treasury auctions.  The 2-year T-Note saw results went reasonably well with the bid/cover dropping only slightly despite more than a 10 basis point drop in the yield.  I would actually say it was fairly positive for mortgage rates remaining low.  Coming up shortly, at 12:30, is the FOMC Meeting Announcement, followed by the 5-year T-Note Auction and Ben Bernanke’s Chairman Press Conference.  Despite many Fed members turning against Bernanke’s “debase the dollar at all costs” philosophy, don’t expect much change today, though some wording may change in the Policy Statement.  Remember, we care more about the Policy Statement than what the Fed does with their Fed Funds Rate.  With the 5-year T-Note being just a half hour later, whatever direction the markets get going could become an exaggerated move and volatility may be quite wild later today.

What does this mean for Mortgage Rates? Mortgage rates may be ready to correct themselves, maybe even get considerably worse, from this point.  A lot will depend on today’s FOMC Announcement, which is not expected to change much this time around.  The safest course of action is to lock, though mortgage rates may yet improve down the road for those whom have the time before closing.  If you do decide to float, be ready to lock in an instant should things get ugly.

Tags: , , ,

No comments yet.

Leave a Reply

Powered by WishList Member - Membership Software