Mortgage backed securities (MBS) closed UNCHANGED (+0 basis points) from Friday's close which caused 30 year fixed rates to move sideways.
Our benchmark FNMA 3.5 December coupon made a run at a rally but simply couldn't sustain it.
Pending Home sales came in at -0.6 vs market expectations of a gain of 1.3. Certainly a miss. But the prior period was revised upward from -5.3 to -4.6 which is actually good news. Plus, when you take into account that this is from the period of the government shut down that put all IRS tax verifications on hold....this is not a bad report all.
As a result, MBS could not sustain their levels above our 10 day moving average.
We had a 2 year Treasury note auction at 1:00EST. Results: $32 billion with a yield of 0.3%. The bid-to-cover ratio was very strong at 3.54 which shows increased demand compared to the average ratio of 3.28. But as we have discussed, the 2 year note is too short of a term to impact longer term rates like mortgages.
So...a weaker than expected Pending Home Sales is supposed to be reflective of weakness in our economy which is why bonds temporarily rallied but then failed. The stock market which is supposed to sell off with weak economic data (because it is supposed to lead to reduced earnings) rallied! The stock market, as measured by the DJIA, hit a new intra-day record high.
Both Chicago PMI and Consumer Sentiment came in above expectations. Earlier, jobless claims were less than expected, however Durable Goods data was weaker. We had climbed back to even on the day just before Chicago PMI and Sentiment.
Everyone else in America, today traders will return from the Thanksgiving holiday. Expect lots of action, which will lead to some volatility. We've already started today down 26 basis points, meaning two things - 1) we've broken significantly below our floor of support; and 2) interest rates will come out slightly higher this morning. Some lenders may be up to .125% higher in interest rate than we saw last week, others will offer the same rate but will have worse rebate pricing (the cost to obtain a rate or the credit the lender gives you towards your closing costs when selecting a rate). It's going to be important to watch today if we do close the day below the 100.86 mark, or if we will see a rally and pull up above it. If you are closing soon and are not locked in, be sure to stay in close contact with your Mortgage Loan Professional today in case of market deterioration that could cause a worsening to your interest rate or rebate pricing.
Today, like the rest of the week, is chock full of market moving economic data reports. Already this morning we've seen a huge MBS (Mortgage Backed Securities) selloff, and most lender rates will be .125% higher than yesterday's market open. Some lenders repriced for the worse yesterday when the market turned in the middle of the day - for those lenders, rates may remain the same but rebate pricing (the cost to obtain a rate or the credit the lender gives you towards your closing costs when selecting a rate) will be worse. We likely have more room to fall and see rates go up another .125 to .250% before we see a bounce. The technicals show MBS as being oversold, meaning that we should see a bounce soon. However, with the economic data that is being released the rest of this week, we likely don't see that bounce until next week - especially if the data leads traders to believe that Fed tapering is around the corner. If you've got a couple of weeks that you can wait before locking, discuss the risks and benefits of waiting with your Mortgage Loan Professional. If you are closing soon, don't chase your losses waiting for a reversal, it appears we still have farther to go and that things will still get worse.
Quick recap....we're back to monitoring the FNMA 4.0 (affecting rates in the 4.375-4.75 range) now after the sell offs of the past week or two.
FNMA 4.0 dropped to -9/32s after claims and GDP releases, but recovered to -2/32s as the affects were digested of a shortened week helping lower claims, and also a huge surge in inventories helping inflate GDP.
We've leaked a little lower, failing to go positive on the day, and currently sitting @ -6/32s.
Overall pricing should be a little worse today, or possibly a decent amount worse, depending on if your lender re-priced yesterday afternoon.
MBS +3/32s however, of an initial dip to -10/32s after data. Most of the damage was done leading into this report for a change, so MBS have recovered for now. Consumer Sentiment was also a huge beat, but we're holding positive for now.
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