Traveling across the globe gets tiring after a while, and getting back early in the morning certainly doesn’t help the situation. Mortgage backed securities appear to be tired of the current situation as well, unable to rally further and mortgage rates ended the week slightly higher as a result.
Last week saw a bit of a correction as was expected, offering a brief chance to float for a lower rate. There wasn’t a lot of data plays, though Retail Sales didn’t assist mortgage bonds’ attempts to rally by beating expectations, and doing so dramatically. It is certainly too early to call it a reversal, but it did open some eyes to say the least. The majority of the week played to the media’s coverage of the upcoming stimulus package. As the week drew to a close on a shortened trading day, bonds’ succumbed to pressures and fell back, failing to break through tough resistance at their 50-day moving average.
As for the stimulus package, it keeps going back and forth between the House and Senate. In the House, there has not been one Republican to vote for it yet. Even in the Senate, the Republicans have not been overly happy with the outcome as they believe it is overspending and will not stimulate the economy the way it is intended to. With 1,071 pages, along with the speed at which the vote is going, it is inevitable that “agendas” will get pushed through and the best things about the program will get cut out, or minimized. One case in point is the first-time homebuyers credit, which has been reduced from $15,000 to $8,000. The bill has yet to pass, and Obama’s administration is already looking for new ways to provide handouts to those potentially facing foreclosure, so more harm is one the way.
Enough politics, let’s get down to business for this week. The week starts off dead, at least with the markets closed and that may very well be a good thing. Unlike last week, we will have more than one major player regarding data. We will see the Fed “unplugged”, as well as data plays on the economy and inflation with the week ending with the CPI report. here is the breakdown…
- Monday: President’s Day – markets closed, Fed Gov Duke Speech (09:40)
- Tuesday: Empire State Index (8:30), Housing Market Index (1:00), 3-mo T-Bill Auction (1:00), 6-mo T-Bill Auction (1:00)
- Wednesday: MBA Purchase Applications (7:00), Housing Starts (8:30), Import/Export Prices (8:30), G.17 Statistical Release (9:15), Crude Inventories (10:30), Bernanke Speech (1:00), (4-week T-Bill Auction (1:00), FOMC Minutes (2:00)
- Thursday: Jobless Claims (8:30), PPI (8:30), LEI (10:00), Philadelphia Fed Index (10:00), Money Supply (4:30)
- Friday: CPI (8:30)
As you can see, as the week progresses, we will be seeing opportunities for mortgage bonds to rally, or get beaten down. Data tends to move the markets at times opposite of what the charts indicate, but so far the charts have been correctly identifying the current trend. Looking at the charts, we see that bonds remain trapped below their 50-day moving average, despite the government talk about lower mortgage rates. Part of the reason mortgage rates haven’t gone down further, even with the Fed buying MBS every week, is the Fed is buying the higher coupon bonds in general and basically continue to keep rates from spiking higher rather than driving them lower.
As we look to what will happen this week in regards to mortgage rates, without government intervention or some major surprise in the markets, mortgage bonds look to fall further as they will likely test support, and that is verified by a negative stochastic crossover and their fall below their 10-day moving average. Expect mortgage rates to tick higher this week.
