Loan Biz Blog

Stocks and bonds look to be the tale of two fables. Stocks on one hand continue to tell the story of positive earnings data as day after day, the majority “beat the street”. Apple reported after the bell yesterday, blowing the doors off expectations. Morgan Stanley and Wells Fargo posted earnings beats as well with comments from the Stage Coach company that credit deterioration is improving and has “turned the corner”. Fixed income products (notes, bonds, and mortgage backs) our on a different page with yields falling/mortgage pricing improving on a continued and heightening sovereign debt crisis. Yields on the Greek 10 year note are over 8.0% as the German Finance Minister expects the country to ask for aid. He also hints that “creditors may need to assume some of the risk”. As you can see, we have stocks and their earnings along with bonds and their flight to quality bid both driving the rally bus. No economic news today. That will change tomorrow with Weekly Claims, PPI (inflation at the wholesale level), Existing Home Sales, and the House Price Index all on the leader board. Out right money flows or price action has been light and two way. We are not seeing the volume in notes and mortgage backs to give us confidence in a continued rally. That said, we do not expect much of a pullback either. Currently, the 10 year note is up 10/32’s to yield 3.76%, very close to our range high (low yield) expectations of 3.75%. Mortgage backs are plus 4/32’s on the day, right where Big Joe took a mark for your pricing. Stocks are up a baker’s dozen on the big board as very overbought conditions are in a dog fight with stellar 1st quarter earnings. Looks like one of those rare days when everyone is happy. One more thought. Take a look at the chart below. This is a classic example of a triangle pattern on a long term time horizon (weekly chart). Patterns like this start out as big range trades, slowing winding themselves tighter and tighter until they reach the apex. At that point, a “breakout” occurs. The measured move that usually happens is at least ½ the distance of the pattern. In this case, the longer term pattern has traveled 2 points in yield on the 10 year note.

Given the charting principals we live by, the movement on the note would be at least 1 point. Given the basis equivalent on MBS and your mortgage pricing, the move would improve or hurt pricing by about .75 bps. In other words, about .25% to .375% in rate. This is not today’s story but one that should resolve itself before year end. Given the underlying fundamental stability in the economy, the odds on favorite would be for mortgage rates to move .25% higher but with soooooo many factors yet to play out, we’ll just have to see what happens. School’s out for today.

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

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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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