Last Week's Mortgage Recap

Last week saw rates improve an average of .250%, depending on the lender, as MBS pricing improved on news of the government shutdown being lifted and the debt crisis being averted.  They did run out of steam however as they approached the 102.00 Resistance Level, meaning that our march to lower rates may have run out of steam.  We have been trading within the same very tight trading channel since the Fed announcement of not tapering on September 18th.

On Friday, MBS improved 10 bps, meaning that both rates and rebate pricing should remain stable.  After two days of dramatic improvement following the temporary resolution of the debt crisis and government shutdown, the MBS market flattened out and for the second day in a row could not convincingly break through the current resistance level. 

We have a huge week for economic data with several of the major economic reports that were held up due to the shut down are hitting the wires this week.

The biggest focus this week will be on Tuesday's Non-Farm Payroll release and Friday's Durable Goods Orders.  The NFP report has taken a very important role in the marketplace as bond traders have been using it as a proxy to determine when the Federal Reserve is likely to begin to taper their monthly MBS and Treasury purchases. Ultimately, when the Fed does begin to taper mortgage rates will rise.

The market now, however, believes that regardless of how strong or weak the NFP readings are, the Fed is forced to stand strong on their massive bond purchase program until March or June of next year.  This is due to the fact that our debt ceiling will be renegotiated once again in February and the first Fed meeting after that new negotiation will be in March.  Since that will be only a month after the new deal, the economy won’t have an opportunity to adjust by the March Fed meeting.  Additionally, if Congress follows its’ recent actions again in February with another short term extension, the Fed will have to keep their bond purchase program going.  This means that rates are likely to remain in a relatively low range for several months.

We have both Existing Home Sales today and New Home Sales on Thursday, so we will have a good pulse on the housing market this week.  There are also three U.S. Treasury auctions all on the same day.






- Michael Corboy
www.specialtyfinancialmtg.com