Thursday, May 19, 2011

Mortgage rates abrupt turn for the worse!

Good afternoon market insighters!

Sorry for the late posting but it has been an extremely hectic day and I am just getting some of the little free time I have to complete this daily update for all.

OK we know yesterday had a very rough close with the FOMC meeting notes release being the driving force. Even though the data was nothing unexpected, it was used as a sell off tool and that did cause the markets to close on a negative note, losing over 44bps for the day at the peak but closed a touch better at -40bps 100.00 (FNMA 4.0 coupon).

Today brought us an equally nasty -22bps gap down open, as traders saw some positive news (nothing earth shattering) but remember I keep saying in this weird market we find ourselves even "slightly" positive news seems to make overreactions as traders try to create out of it something that isn't as it should be (a total overreaction).

Here is the news from today that sparked this early gap down loss...

Initial Claims: Actual 409K, prior 434K (consensus was 420K so a +11k release)
Continuing Claims: Actual 3711K, prior 3756K (in line with consensus)
Existing Home Sales: Actual 5.05M, prior 5.1M (consensus was 5.23M a -.18M release)
Philadelphia Fed: Actual 3.9, prior 18.5 (consensus was 18 a -14.1 release)

So you look at all this and add to it all the happenings for both Portugal, Greece and the not talked about nuclear issues still in Japan and you think "why did we lose 62bps over this"? The answer is... a spin on anything can make a "temporary and quick change" but one that will correct and be short lived. No matter the size of the investor the technicals simply cannot be overlooked and I believe we will rebound from this unmerited sell off.

On a positive note we have started to see some minor retracement from early losses as the Philly Fed number did cause some to rethink their earlier positions - good for rates.

I expect what is left of today to trade between the 99.80 - 100.1 mark. It would be very good if we could break over the 100 line as that will help create a new level of resistance to trade from over the next several days.

The 10Y took a mild hit as well seeing its Yields go from 2011 lows of 3.09 to 3.22 in just a few hours. Since this a slight retracement has occurred here as well and the 10Y is back down to 3.18

Lock Advice -
If closing is 7-10 days Float for late this afternoon or tomorrow as we should see more retracement of losses and an ease to pricing but Lock no later than tomorrow
If closing is 14+ days - Float as we will see rates gain back losses and keep a close eye on the FNMA 100 level. If we break too far below (99.7 or less) we could see another small sell off before it gains back ground.

Its tough out there but we are all in the same boat so be positive and make it a great day!!!

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