Mortgage Rate Forecast–May 10, 2011

Locking Stance:  LOCKING      Mortgage Bonds:  -9bp

Once again, the 200-day moving average is proving to be a solid layer of resistance and mortgage backed securities are edging lower this morning.

The NFIB Small Business Optimism Index came in at 91.2, a little lower than last report’s 91.9 and reflects an “anemic” pace of economic recovery.  The report’s data shows hiring plans inconsistent with the solid payroll gains from Friday’s Jobs Report, indicating the bulk of the hiring is occurring at large firms and not small businesses, meaning the “backbone” of our economy is not hiring.  Import Prices came in at 2.2% (11.1% y/y) and Export Prices came in at 1.1% (9.6% y/y), showing inflationary pressures moving into what are still subdued consumer prices.  With the main causes being food and energy, talk of increased non-core PPI and CPI numbers are likely.  Wholesale Trade came in at 1.1% indicating inventory build is strong, but not accelerating.  Elizabeth Duke was speaking and stated that the lack of a housing market recovery (OK, she said slow), will likely inhibit overall economic recovery for some time.  Jeffrey Lacker will be speaking just before the 3-year T-Note Auction this afternoon.

What does this mean for Mortgage Rates?  Mortgage rates are edging a bit higher after testing yet again their 200-day moving average.  Most likely, they will move higher still, at least for the short-term.  As for the long-term outlook, that is debatable at this point.

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