Mark's Blog Report

The epic battle of the week between economic weakness and inflation raged on today.  Yesterday inflation had some wind taken out of it's sails and Mortgage Backed Securities (MBS) advanced nicely.  As we discussed, yesterday's PPI data was the only major inflation report of the week, and the rest of the data would speak to the other factors of the economy.

I had said earlier that even though inflation may be high, that other economic reports would continue to disappoint, and that if we could make it through Tuesday on a fairly positive note, that the rest of the week could be great.  So far, so good!

The economic data is certainly helping: new home sales are the lowest in 13 years, durable good orders fell by  5.3% (almost double expectations), and mortgage applications are down by a good margin.

Today Bernanke testified before Congress.  MBS are doing well with prices improved by roughly 1/3 over yesterday's close.

The federal regulator for Fannie and Freddie just announced that their investment caps would be lifted, allowing them to buy more loans.  As this is somewhat optimistic for those that still believe we can "skirt a recession", MBS responded immediately after the news and fell a bit from their highs of the day. 

The line that graphs MBS prices today was up and down, but if one were to plot points each time the line bottoms out, and then draw a line connecting those points, it would be moving upward at a 45 degree angle.

In other words, bond prices are steadily climbing today which is good for rates.  Since the low points on the price graph all lie exactly on this line, this establishes what's known as a technical trend.

Looks like we are going to push to the highs of the day as MBS trading closes.

The 5.5 coupon is up 20/32nds!  That's it's highest level of the day and has been a technical "ceiling" that has enticed bond holders to sell earlier in the day.

Volume reports indicate buyers outnumber sellers 4 to 1!  

Until now, sellers stepped in fairly aggressively when the price got this high, so it's fantastic news for mortgage rates.

I have yet to see a lender that has priced in anywhere near this level of improvement in today's rate sheets even with reprices, so feel free to float until this improvement gets baked into the cake.  This will likely be tomorrow and we'll have to hope that none of tomorrow's data is damaging to MBS or these improvements could get washed out.

Whatever the case, the benefits of floating into tomorrow certainly outweigh the risks.