The Government takeover of Fannie Mae and Freddie Mac is making its mark on the bond market.  Mortgage Backed Securities are up +150bp!  Fannie Mae mortgage bonds now are guaranteed by the US Government and investors are buying them up.  This should help drive down mortgage rates and hopefully get the housing marketing moving again.  With Mortgage Bonds being such a hot commodity the US Government now will need some low risk mortgages to secure them against.  I do not personally believe the mortgage crisis is over, but low mortgage rates can’t hurt our industry!

Inflation, Inflation, Inflation!  Today the Philly Fed President Charlie Plosser said that inflation is too high and the Fed would have to “back up their words with action”.  The Fed will need to begin hiking the Federal Funds rate as soon as possible to fight inflation.  It seams that we are at the rock bottom with mortgage rates assuming the Fed starts to take action and raise their Feds Cut Rate.  Mortgage backed securities are -44bp on the day at 99.12.

PPI comes in red hot with Food and Fuel prices pushing inflation.  The Core PPI hit expectations and held onto the 3% year over year gains.  Inflation with no hope of the Fed bailing out investors should help push bond prices higher as investors move to a flight to quality in Mortgage Backed Securities.  Mortgage Bonds have hit a floor of support and bounced Monday and Friday off.  This usually signals a reversal. 

CPI reported worse than expectations signaling even more inflation.  Consumer Sentiment in June was a horrible 56.7!  Mortgage Bonds are were all over the place this morning and currently set +31bp @ 100.03.  Hopefully we have seen the floor for Mortgage Backed Securities and we begin the “leash effect” pulling Mortgage Bonds back to a decent level.  We have seen a -235bp loss in the 6.0% Fannie Mae Mortgage Backed Bonds in 8 days of trading! 

After yesterdays Mortgage Bond rally to push rates lower, today’s very strong Retail Sales numbers for May quickly reversed the momentum.  Retail Sales in May reported a 1% increase and without Auto Sales the increase was 1.2%.  Mortgage Backed Securities hate inflation and dislike “good news.”  Also reported today was Initial Jobless claims which were worse than expected at 384,000.  Mortgage Bonds are seriously hurting.  We are now starting to monitor the 6.000% FNMA Mortgage Bonds since they more accurately reflect current mortgage market conditions.  The 6.000% Mortgage Bonds are -44bp on the day at 99.97.  The Fed needs to get control and start raising short term money to take some steam out of the stock market and drive Long Term Fixed rates down to a reasonable level.

We have a good bond rally helping drive mortgage rates lower this morning.  Currently, FNMA 5.5% Mortgage Bonds are selling up +84bp for 98.25.  As we mentioned earlier in the week Mortgage Bonds seamed oversold.  Today the Fed Beige Book Survey is released at 2:00pm ET.  I would predict we have an even stronger rally tomorrow if retail sales miss expectations.  The 200 day moving average is currently 99.56.  With the volatility in the market as of late getting back the 138bp we need to reach it could happen in a day or two.

June 10, 2008 | Mortgage Rates are increasing!

The Balance of Trade was slightly higher than analyst expected today.  Mortgage Bonds are still getting slaughtered -68bp!  The Fed Chairman Ben Bernanke’s speech last night has pushed mortgage bonds to their lowest level since March.  Mr. Bernanke is concerned about inflation, but he believes the market will work itself out.  The Fed’s lack of action will cause a weaker dollar, higher oil prices, and more inflation.  The Fed needs to raise the Feds Cut Rate ASAP!  This will strengthen the dollar, lower oil prices, and LOWER 30 YEAR FIXED MORTGAGE RATES.  Hopefully the FED catches on and starts to increase the Feds Cut Rate now.  I am still standing by the Bond Market Rebounding and the Fed doing their job to FIGHT INFLATION.

June 9, 2008 | Mortgage Rates continue to head higher.

This morning Pending Homes Sales actually reported a 6.3% improvement for April.  Now that the good news for mortgages is out of the way, inflation seams to be on everyone’s mind.  Mortgage Bonds are currently -75bp.  $4.00 a gallon was the US average price for gas being broken on Sunday.  Today we have a string of FOMC member speaking.  The New York Fed President Timothy Geithner has speaks at 12:15pm, Dallas Fed President Richard Fisher is interviewed at 1:00pm, and at 8:15pm ET Fed Chairman Ben Bernanke will be giving his incite on inflation.  The end of this week is packed with elevated market movers.  As far as mortgage rates predictions for the week, I believe mortgage bonds are oversold and we should get back these losses Thursday’s retail sales report.  I predict that rates will improve after today’s unsolicited blood bath.

June 6, 2008 | Rates are still trending higher, even with a 5.5% Unemployment Rate…

This mornings Employment Report had a little suprise hidden inside it.  The unemployment rate made an unbelievable +.5% increase in just a month!  Non-Farm Payrolls and Hourly Earnings ended up better than economist estimated.   The shocking unemployment rate usually would give Mortgage Backed Bonds the boost it needs to approach the 200 day moving average.  Already this morning Mortgage Bonds have seen a low of 98.5625 and a high of 99.25.  That is almost a 69bp swing!  With this volatility floating an interest rate is ludicrous.  Even though FNMA Bonds are currently +12bp on the day, it looks like going into the weekend and the fact that any real ELEVATED market moving economic indicators will not be reported until Retail Sales next Thursday, I believe rates are still heading higher.  We will keep an eye on the stock market for signs of weakness and keep you updated if Mortgage Bonds gain steam.

June 5, 2008 | Rates are heading up as the battle for the 200 day moving average continues.

Mortgage Bonds were absolutely slaughtered yesterday.  The Fannie Mae Bonds opened yesterday at 99.875 and this morning we saw a low of 98.625 already.  As a reminder, Fannie Mae Mortgage Backed Securities correlate directly with Long Term Fixed Mortgage Rates.  Every -.40-.50 basis points Mortgage Bonds move is +.125% higher interest rate for consumers.  That means if yesterday morning 30 Year Fixed was 6.125% and Mortgage Bonds lost -125bp, [99.875-98.625] then this morning that same consumer would have +.25% to +.375% higher rate [6.375-6.500%].   With yesterdays notoriously misleading ADP report showing growth in employment, investors are looking for a stronger than expected employment report tomorrow.  Bonds are down -38bp at 98.81 on the day currently with no other important economic indicators scheduled for release.  Consumers should lock in their Long Term Fixed rates in this volatile market and definitely consider 5-7 Year Arms as an alterative to 30 Year Fixed since they have been improving.