Rate Udpate May 22, 2009

Fixed Mortgage Rates are even with yesterday.

Mortgage Backed Bonds lost everything they had gained early this week with a poor outing in yesterday’s trading.  Bonds were down yesterday over 30 basis points on bad news coming from both directions.  The Treasury announced that it would sell $162 Billion in Bonds to help pay for the enormous stimulus package rolled out earlier this year.  This extra supply coming into the bond market was not well received by traders and prices quickly deteriorated.  Also stemming from this news was the predictions that the US would have to eventually start printing money to pay for the stimulus package (something that I have been thinking for quite some time now), which will only fuel inflation in the future.  This added risk of inflation is not kind to long term debt and therefore weighed heavy on bonds yesterday.

The NY Fed did purchase $25 Billion in mortgage backed debt this last week bringing the year to date total to $482 Billion, which is still only about 40% of their commitment 5 months into the year.  The coupons bought were ranging from 4% to 6% bonds which will not help rates get too much lower than where they are currently however.

Current Outlook: Carefully Floating