Loan Biz Blog

The morning after continues towards the path of least resistance, that being higher yields and worsening mortgage pricing. Certainly the economic fundamentals of a recovering economy, continuously evolving fiscal policy which we feel is more borrowing and less monetary stimulus, and a reluctance of our foreign partners to take on our debt/risk are the heavy weights in this move to higher yields. In this current environment, markets are more complex that ever and the flow of money with it’s associated risk can be powerful and detrimental. The trend is changing and even though we don’t like it, a “new normal” for mortgage rates is in the works. Fundamentals aside, the chart below gives you a good picture of where we’re headed.

The large channel dating back to last year, which gave us a series of lower highs and lower lows in yield has now been breached. Phase two was the triangle formation that was trapped between 3.29% and 3.81%, winding itself tighter and tighter headed for a breakout. That breakout happened yesterday and if you remember our comments a couple of weeks ago, our bias carried a high probability of that breakout leading to higher yields. Wished we were wrong. Damage done, it’s time to move on and get back to business. Earlier today, Weekly Unemployment Claims fell 14K to 422K. Continuing Claims also fell. Both are not indicative of a trend but a better reflection of improving weather across the country and government consensus hiring. Bill Gross, often referred to as the “bond god”, is talking about how he’s bearish on bonds and feels that stocks are a better buy. He also commented that he expects to see the 1 year TBill rate at 1.25% to 1.50% within a year. Today’s rate is .41%. Currently, the 10 year note is off 14/32’s (yield 3.87%), mortgage backs are off 16/32’s, and stocks are on fire, up 100 points on the big board. One thing on MBS, we priced down 9/32’s this morning, telling you that the market is 7/32’s worse that where we priced. Price change of .125% to .25% is right around the corner. With the upward trend gaining momentum, the 10 year note is on a clear path towards 4.0% plus. Best case on any rebound/reflex rally is back to 3.75%/3.77%. We all know why the trend is higher but here’s some of the factors that could stop the selling and improve mortgage pricing. One would be a good 7 year note auction today (12:00 cst). Two is month end buying by hedge funds and money managers to extend duration. Three being weaker than expected Employment Report next week. The market is looking for a gain of 200K. Markets like this are very dangerous. They can travel to higher yields beyond where you think they can. They can stay over sold for long periods of time. The bottom will not be put in until the last person sells. Don’t hold loans hoping for a recovery. It’s bad for your checkbook. On the bright side, market do not go down forever, it just feels like it. Hang in there.

With Permission & Courtesy of Scott S. Eggen
Senior Vice President – Capital Markets

For other rate lock advisory commentary please visit:
http://www.mrloanbiz.com/DailyRateAdvisory

Sam Cowen, NMLS ID#: 176693
Branch Manager, Lending in 47 States
PrimeLending | a PlainsCapital Company
2007 N Collins Blvd Ste 403 Richardson, TX 75080
Email: 888@MrLoanBiz.Com Web: www.MrLoanBiz.Com
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