Rate Update June 23, 2009

Fixed Mortgage Rates are even with yesterday.

Mortgage Backed Bonds are trading slightly higher this morning but remain right underneath the ceiling of resistance, which is the 200 day moving average.  At 10:00 AM pacific time, the Treasury will auction off $40Billion of 2-yr notes, part of the $104 Billion in Notes I have been referencing for the past few days.  Let’s hope that this round of Treasury auctions go better than the last one, that helped cause Mortgage Backed Bonds to slip over 500 basis points starting in late May. 

Though Mortgage interest rates are derived solely on Mortgage Backed Securities; having a high amount of Treasury notes on the market causes a battle for investor dollars, which can hurt the demand of Mortgage Backed Securities, thus affecting the price of those bonds, and therefore Mortgage Rates.  Back in the good old days (read: January-April) Mortgage coupons were yielding 4%, which was about twice the amount as long term treasuries…but as the economies stimulus package is starting to be paid for and Treasury auctions have started to occur, the yields on long term treasuries has also increased.  In order to keep Mortgage Bonds attractive to investors, the yields on Mortgage Backed Securities have gone up to 4.5% but the competition between the two has gotten much fiercer.   This event also causes the possibility of lower Mortgage Rates to get smaller by the day. 

The Fed meeting that starts today will be important in that if The Fed will start buying more Long Term treasuries, to help keep those yields low, Mortgage Backed Bond yields can then follow, and we may see lower Mortgage Rates because of it.  For the sake of a positive shock to the hosing market and continued refinances, let’s hope for the best with the Fed’s decisions.

Current Outlook: Very cautiously floating